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Proposals to cut Arkansas income taxes, explained

by Arkansas Democrat-Gazette, Nyssa Kruse | September 21, 2021 at 10:59 a.m.
Arkansas State Senators vote on Senate bill 32 during the Regular Session of the 93rd General Assembly on Wednesday, Jan. 20, 2021. on Wednesday, Jan. 20, 2021. The bill, which passed 19-9, will allow home delivery of alcohol by liquor stores, making permanent an emergency declaration made by Governor Hutchinson last March. See more photos at arkansasonline.com/121senate/ (Arkansas Democrat-Gazette/Stephen Swofford)

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The governor and General Assembly are expected to meet for a special session in the coming weeks to consider cutting income taxes. Before legislators are called back to the capital city, state leaders are trying to home in on the key points of the debate.

(To learn how Arkansas’ income taxes are currently structured, go here.)

What are proposals centering on?

Proposals so far are pitching ways to cut the state’s top income tax rate. Proposals also want to make adjustments to “tax cliffs,” which is when someone’s tax burden increases dramatically when they move from one tax table to another.

For example, under the current system, a taxpayer with an income of $22,899 pays $535 because they fall into the low income tax table while a taxpayer with an income of $22,900 pays $720 because they fall into the middle income tax table.

That is an increase of $185 in taxes, even though the income difference is just one dollar.

What is the Department of Finance and Administration proposal?

Gov. Asa Hutchinson directed the finance department to incorporate his goals with feedback from legislators to create a proposal.

The Department of Finance and Administration has suggested:

  • Reducing the top rate from 5.9% to 5.7% on Jan. 1, 2022, and then to 5.5% in 2023.
  • Modifying the income tax brackets in the low-income tax table
  • Trimming the 5% rate level to 4.5% in the part of the middle-income tax table
  • Fixing income tax cliffs between the low- and middle-income tax tables

What other proposals are out there?

Sen. Jonathan Dismang, R-Searcy, who is co-chairman of the Joint Budget Committee, has made a proposal to:

  • Merge the low- and middle-income tax tables so the state would have a "base" income tax bracket set (income of up to $82,000) and a high-income tax bracket set (income greater than $82,000)
  • Reduce the top individual income tax rate from 5.9% to 5.7% in 2022; to 5.5% in 2023; to 5.3% in 2024; to 5.1% in 2025; and finally to 4.9% in 2026
  • Fix income tax cliffs between the tax tables

He said the proposal reflects his work with House leaders.

Read more about the tax cut proposals so far from reporter Michael Wickline, and sign up for our politics newsletter to stay up-to-date on all things state government.

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