Arkansas lawmakers to again consider cutting top individual, corporate income taxes

With a week left in the legislative session, Gov. Sarah Huckabee Sanders and leading lawmakers reached an agreement to pursue a $124-million income tax cut targeting Arkansas’ top individual and corporate income tax rates.

A bill filed Thursday proposes reducing the top individual income tax rate from 4.9% to 4.7% — a cut budget officials project will reduce state revenue by $100 million annually.

The legislation also would cut the top corporate income tax rate by two percentage points to 5.1% — a $24 million-a-year hit to state coffers.

The tax breaks’ effective date would be retroactive to Jan. 1, meaning taxpayers would see the benefits in the current tax year.

The individual income tax cut impacts Arkansans earning more than $24,300 a year, roughly 1.1 million people in the state.

Sanders at a news conference said the proposal was a fulfillment of her campaign promise to cut taxes responsibly. She pointed to recent tax cuts in neighboring Missouri and Mississippi, saying Arkansas would lose out on talent and new businesses without trimming taxes.

“The simple truth is that the talent, the families and businesses we create will leave our state for greener pastures,” Sanders said. “That’s just frankly an economic reality.”

If passed, the bill would be the latest step by the Arkansas Legislature to reduce liability throughout the tax tables.

Lawmakers phased in cuts for lower, middle and upper level earners over the last few legislative sessions. In August, the General Assembly in special session accelerated cuts to the top corporate and individual income tax rates.

Sen. Jonathan Dismang, R-Searcy, said the legislation, if enacted, would be seen in paychecks almost immediately due to changes in withholding. Dismang is the bill’s sponsor.

“When that change happens because it’s retroactive and individuals have already been paying through the first several months of this year, there actually will be a catch up,” Dismang explained. “So your withholding that you’re seeing in your paystub, if you’re a W2 employee, is going to drop because of this.”

The plan is unlikely to face much pushback in the Republican supermajority Legislature.

Democrats have opposed similar plans in the past, saying the money would be better spent on critical government programs and services or that any tax cuts should target low-income Arkansans.

House Minority Leader Tippi McCullough said the plan would take the state down a “dangerous path.”

“In every major issue we’ve dealt with this session, we’ve heard over and over again that our essential functions: public education, the justice system and health care, are severely underfunded,” the Little Rock lawmaker said. “If we continue down this path of phasing out the income tax, we won’t have the resources to deal with these issues and pay for our essential services without raising other types of taxes, like sales taxes and property taxes.”

Bruno Showers, senior policy analyst for Arkansas Advocates for Children and Families, an independent advocacy group, said the proposal would mostly benefit the wealthiest Arkansans.

He also noted that the state would become even more reliant on sales and property taxes, which he said fall more heavily on lower earners.

“We know for sure that the majority of the benefits are going to go to the people who make the most and wealthy corporations,” Showers said. “The corporate income tax cuts will be passed on to wealthy shareholders, who often don’t even live in Arkansas.”

House Speaker Matthew Shepherd accompanied Sanders and Dismang at Thursday’s news conference, saying he hopes the legislation works its way through the Capitol “in short order.”

The bill was introduced a week before lawmakers are scheduled to end the main business portion of the 2023 session on April 7.

The House and Senate suspended several rules this week to allow bills to move more quickly through the two chambers.

Shepherd reiterated that he still believes lawmakers can finish their work by Easter, though some members expressed doubts.

The income tax cuts were added to a growing pile of unfinished business that includes approving the state budget, public education funding formula, referring constitutional amendments to the 2024 ballot, a massive overhaul to the state’s parole system among other individual legislators’ priorities.

That’s not to mention additional tax cuts that Dismang said were being discussed, though he said he wasn’t ready to commit to any additional proposals on Thursday.