Arkansas' tax code is too costly, too complex and unfair, an economist with the Washington, D.C.-based Tax Foundation said Monday.
The Tax Foundation and the Arkansas Center for Research in Economics at the University of Central Arkansas spent six months interviewing taxpayers in the state with a goal of recommending meaningful changes to the state's tax code.
The researchers met with more than 100 Arkansans, comprised of business owners, government officials, trade associations, in-state academicians and ordinary taxpayers.
The Tax Foundation bills itself as a think tank that publishes research studies on U.S. tax policies.
The economists released a 99-page report Monday that made recommendations on tax changes that Arkansas could make, including changes in individual income taxes, sales taxes and property taxes.
"We heard story after story about complexities in the code, the challenges there are to file a tax return in Arkansas, both for individuals and businesses," said Nicole Kaeding, an economist with the Tax Foundation.
Arkansas' individual income-tax rates are the highest in the region, the report said. Arkansas' highest individual income-tax rate is 6.9 percent, higher than in adjacent states -- 6 percent in Louisiana, Missouri and Tennessee (which taxes only interest and dividend income) and 5 percent in Oklahoma and Mississippi. Texas does not tax individual income.
Arkansas now uses three different rate structures, plus one for low-income individuals, which the report said was "an uncommon approach."
The report suggested repealing the three structures and using one of three options for individual income taxes: A flat tax of 4.95 percent; four rates of 0, 2, 4 and 5 percent; or varying rates of 0, 2, 3, 4, 5 and 6 percent.
The Tax Foundation and UCA also advised reducing several areas of the state's sales tax and property tax.
Other foundations also have had recommendations for the state's tax codes.
Since 1998, the Arkansas Policy Foundation, a Little Rock-based conservative nonprofit organization, has said that Arkansas' capital gains and income-tax rates create a competitive disadvantage for the state's entrepreneurs, households and individuals, said Greg Kaza, an economist and director of the foundation. Since then, the capital gains rate has been reduced by 50 percent, Kaza said.
Beginning in 2002, the Arkansas Policy Foundation also pointed out that the grocery tax was regressive and a burden on middle-class and low-income households, Kaza said. The grocery tax has been lowered from 6 percent to 1.5 percent.
The Arkansas Policy Foundation also supports accelerating the reduction of the income tax rate to the regional average, Kaza said.
The state House of Representatives can use the study by the Tax Foundation and UCA during discussions about the tax code, said Speaker of the House Jeremy Gillam, R-Judsonia.
"With the tax reform options that they've given, I think it's going to be able to spur lot of good debate and good discussion within our membership," Gillam said.
Rep. Mark Lowery, R-Maumelle, said there is room for discussion about the state's tax codes.
"Everyone recognizes that Arkansas is a poor state," Lowery said.
Yet the state's individual tax rate is one of the highest in the region, Lowery said.
Business on 11/15/2016