Gov. Asa Hutchinson on Friday issued a call for the General Assembly to convene in a special session starting Tuesday to provide immediate tax relief to Arkansans and set aside $50 million for a school safety grant program.
“As inflation rises and the cost of living increases, Arkansans need more money in their pockets,” Hutchinson said in a news release.
“With a record surplus in the last year fiscal year, we have the ability to provide financial relief and ensure our children can be protected in their schools,” the Republican governor said.
Hutchinson’s call for the special session doesn’t include teacher pay raises.
Over the past month, Hutchinson has said he wouldn’t put teacher pay raises on the call for the special session because of the lack of support in the Republican-dominated Legislature to consider teacher pay raises in the special session.
House and Senate Democrats said they support boosting teacher salaries in the special session. But Republican legislative leaders said they want to consider teacher pay raises in the regular session, starting Jan. 9, after completing the biennial educational adequacy review this fall.
The four-pronged tax cut package that Hutchinson and Republican legislative leaders have agreed upon for the special session is projected to reduce state general revenue by $500.1 million in fiscal 2023, $166.6 million more in fiscal 2024, $69.5 million more in fiscal 2025, $18.4 million more in fiscal 2026 and $8.4 million more in fiscal 2027, according to the state Department of Finance and Administration.
The tax package includes:
— Accelerating the implementation of cutting the state’s top individual income tax rate from 5.5% to 4.9%, retroactive to Jan. 1, 2022. The state’s top individual income tax rate is scheduled to be cut to 5.3% on Jan. 1, 2023; to 5.1% on Jan. 1, 2024; and to 4.9% on Jan. 1, 2025 under current state law.
The finance department projects that this proposal would would reduce state general revenue by $295.9 million in fiscal 2023, $114 million more in fiscal 2024 and $39.15 million more in fiscal 2025 to eventually provide tax relief totaling $449 million a year.
— Accelerating the reduction in the state’s top corporate income tax rate to 5.3% on Jan. 1, 2023. Arkansas’ top corporate income tax rate is 5.9 %. The rate is scheduled to drop to 5.7% on Jan. 1, 2023; to 5.5% on Jan. 1, 2024; and to 5.3% on Jan. 1, 2025 under current state law.
The finance department projects that this proposal would reduce general revenue by $18.5 million in fiscal 2023, $27.8 million more in fiscal 2024, and $9.2 million more in fiscal 2025 to eventually provide $55.6 million a year in total tax relief.
— Granting a temporary income tax credit of $150 for individual taxpayers with net income up to $87,000 and of $300 for married taxpayers filing jointly with net income up to $174,000. These taxpayers will be required to be full-time residents of Arkansas to receive the tax credit.
The department projects this proposal will reduce general revenue by $156.3 million in fiscal 2023.
— Adopting the 2022 federal Section 179 depreciation schedule as it existed Jan. 1, 2022, which provides an income tax reduction for the expensing of certain property.
The federal Section 179 depreciation schedule allows businesses to deduct the entire purchase price of new or used equipment up to $1.08 million in 2022 rather than capitalizing and depreciating the asset over the designated useful life of the asset, said finance department spokesman Scott Hardin. The $1.08 million deduction is reduced dollar for dollar if asset purchases exceed $2.7 million for 2022, he said.
Arkansas previously adopted Section 179 as it existed on Jan. 1, 2009, and the dollar limitation on the deduction is $25,000 and the dollar-for-dollar phase-out starts at $200,000, according to Hardin. The federal limitation is adjusted for inflation each year, he said.
Arkansas doesn’t plan on adopting federal bonus depreciation, which also allows 100% of the cost of equipment purchases to be written off when purchased, but does not have a maximum dollar limitation, he said.
The department projects this proposal would reduce general revenue by $29.4 million in fiscal 2023, $24.8 million more in fiscal year 2024, $21.1 million more in fiscal 2025, $18.4 million more in fiscal 2026 and $8.4 million in fiscal 2027 to eventually provide tax relief totaling $55.6 million a year
The state collected a record general revenue surplus of $1.628 billion in fiscal year 2022 that ended June 30 and the finance department is projecting a $914 million general revenue surplus in fiscal 2023, which started July 1 and ends June 30, 2023.
On his call for the special session, Hutchinson also wants the General Assembly to transfer $50 million from the state surplus for the purpose of a school safety grant program, consistent with the recommendations of the Arkansas School Safety Commission. This program will provide funding for school districts to increase security measures on their campuses.