The Arkansas House Revenue and Taxation Committee on Wednesday advanced identical bills that would trim the state's top individual and corporate income tax rates and create a temporary income tax credit for low-income and middle-income taxpayers.
In voice votes without any audible dissenters, the House tax committee recommended the House approve House Bill 1007 by Rep. Les Eaves, R-Searcy, and Senate Bill 8 by Sen. Jonathan Dismang, R-Searcy.
The action came on the third day of a special session called by Republican Gov. Sarah Huckabee Sanders with legislative leaders aiming to wrap up action today.
HB1007 and SB8 would trim the state's top individual income tax rate from 4.7% to 4.4% and the state's top corporate income tax rate from 5.1% to 4.8%, effective Jan. 1, 2024.
For tax years starting on or after Jan. 1, 2024, the 4.4% individual income tax rate would include Arkansans reporting more than $87,000 in net income and apply to their income of $8,801 and above under the bills. That top rate also would include Arkansans reporting net income up to $87,000 and apply to their income between $24,300 to $87,000 for tax years starting on or after Jan. 1, 2024.
The top corporate income tax rate of 4.8% would apply to net income of corporations exceeding $11,000 for tax years starting on or after Jan. 1, 2024, under the measures.
The identical bills would create a temporary nonrefundable income tax credit of $150 for individual taxpayers in Arkansas with net income up to $89,600 and a temporary $300 nonrefundable income tax credit for married couples filing jointly with net income up to $179,200, retroactive to Jan. 1, 2023. The income tax credit would phase out for individual taxpayers with net income up to $103,600 and married taxpayers filing jointly with net income up to $207,200, under the bills.
Eaves told the House tax committee that people who make at least $24,300 a year would receive an individual income tax reduction under the measures, and he doesn't consider people making $24,300 a year to be rich.
People making $24,300 a year would benefit from the individual income tax rate reduction and the temporary income tax credit of $150, he said.
But Keesa Smith, executive director of the Arkansas Advocates for Children and Families, said the average Arkansan won't get much money in their pocket from the tax cut.
She urged the House tax committee to take a hard look at the state's budget and whether it truly meets the state's needs, ranging from access to early childhood education programs to access to affordable housing, before approving another income tax cut.
Rep. Julie Mayberry, R-East End, said she favors the tax cut but urged Smith to keep speaking out about the state's needs.
Mayberry said the nearly $4 million that the Bureau of Legislative Research will spend constructing a tunnel between the state Capitol building and the Multi-Agency Complex immediately west of the state Capitol might have been used instead on the state's most vulnerable citizens.
Eaves, chairman of the House tax committee, said the state has gradually and responsibly reduced its top individual income tax rate from 7% to 4.7% over the past 10 years.
The state's $1.161 billion general revenue surplus in fiscal 2023 is an indication the state is likely overcharging taxpayers and needs to give some money back to lawmakers' constituents in the form of a tax cut, he said.
Eaves said Arkansas is going to lose out on potential jobs if lawmakers don't keep Arkansas' income tax rates competitive with other states.
Among other things, he noted that Mississippi's individual income tax rate is 5% and will drop to 4% in 2026. Two of Arkansas' neighboring states, Tennessee and Texas, don't levy individual income taxes.
About 1.1 million individual income taxpayers would receive a tax reduction and about 7,500 corporations with a net taxable income greater than $11,000 would receive a tax cut under SB8, according to the state Department of Finance and Administration.
The state finance department projected that SB8 would reduce state general revenues by a total of $248.5 million in fiscal year 2024 that started July 1 and ends June 30,2024 -- including $156.3 million for the "inflationary relief income tax credit" -- and $184.5 million in fiscal 2025 that starts July 1, 2024, and ends June 30, 2025.
Cutting the state's top individual income tax rate from 4.7% to 4.4%, effective Jan. 1, 2024, is projected by the finance department to reduce state general revenues by $75 million in fiscal 2024 and $150 million in fiscal 2025, and trimming the state's top corporate income tax rate from 5.1% to 4.8%, effective Jan. 1, 2024, is projected to reduce state general revenues by $17.2 million in fiscal 2024 and $34.5 million in fiscal 2025.
In the regular session earlier this year, the General Assembly and Sanders authorized a $177.7 million increase in the state's general revenue budget to $6.2 billion in fiscal 2024, with most of the increase allocated to education and corrections programs.
In May, the finance department projected a $423.3 million general revenue surplus at the end of fiscal 2024 on June 30, 2024.
Approximately $174 million will remain from the projected fiscal year 2024 surplus if tax cut measures become law, finance department spokesman Scott Hardin said Tuesday
ARKANSAS RESERVE FUND
In other action Wednesday, the House voted to approve House Bill 1004 by Rep. Lane Jean, R-Magnolia, that would create the Arkansas Reserve Fund Set-Aside in the Restricted Reserve Fund and require the state's chief fiscal officer to transfer $710.6 million from the state's general revenue allotment reserve fund to the Arkansas Reserve Fund Set-Aside.
HB1004 would require a two-thirds vote of either the Legislative Council outside of a legislative session, or the Joint Budget Committee in a legislative session, to transfer funds from the Arkansas Reserve Fund Set-Aside at the request of the state's fiscal officer for particular programs.
The House on Wednesday voted 92-4 to send HB1004 to the Senate for further action.
On Wednesday, the House Revenue and Taxation Committee voted to send Senate Bill 1 by Sen. Jimmy Hickey, R-Texarkana -- which is identical to HB1004 -- to the House for further action.
Mayberry noted that only the 32 representatives on the Legislative Council would get to vote on how to use that $710 million in the Arkansas Reserve Fund Set-Aside under the bill. She doesn't serve on Legislative Council.
But Jean said if the state has a financial emergency, funds can be tapped quicker during a Legislative Council meeting outside of a legislative session rather than a special session called by the governor.
If the Legislative Council authorizes funds to be tapped from the Arkansas Reserve Fund Set-Aside under the bills, he said the funds would be used to "fill holes" in the Revenue Stabilization Act that prioritizes the distribution of state general revenues to state-supported programs and can't be used to exceed the line-items in the Revenue Stabilization Act.
"The idea with $710 million ... would only be to bolster [the state's Revenue Stabilization Act] should the downturn be severe enough that [Department of Finance and Administration Secretary Jim Hudson] and the governor would decide to ask for any of the revenues out of the $710 [million]," Robert Brech, the finance department's deputy director of budget, told the House tax committee Tuesday.
From the $1.161 billion fiscal year 2023 surplus, about $710 million of that "remains uncommitted/available," according to Scott Hardin, a spokesman for the finance department.
The state has a $1.529 billion balance in the state's catastrophic reserve fund, and a $1.478 billion balance in the restricted reserve fund with set-aside funding for various projects, Hardin said.
The state's $1.161 billion general revenue surplus in fiscal 2023 is state government's second-largest general revenue surplus in any fiscal year, behind only the $1.628 billion surplus accumulated in fiscal 2022 that ended June 30, 2022. State government's third-largest general revenue surplus totaled $945.7 million in fiscal 2021 that ended June 30, 2021.
In April, Sanders signed into law a bill that cut the state's top individual income tax rate from 4.9% to 4.7% and the state's top corporate income tax rate from 5.3% to 5.1%, retroactive to January 1, 2023.
The top individual income tax rate of 4.7% included Arkansans reporting more than $87,000 in net income and applied to any income over $8,800 for tax years starting on or after Jan. 1, 2023. That top rate included Arkansans having net income up to $87,000 and applied to their income between $24,300 to $87,000 for tax years starting on or after Jan. 1, 2023.
The top corporate income tax rate of 5.1% applied to net income of corporations exceeding $25,000 for tax years starting on or after Jan. 1, 2023. The tax cut legislation signed into law in April is projected by the finance department to reduce state general revenue by $186 million in fiscal 2024 and $124 million in fiscal 2025.
In April, Sanders also signed into law a bill that will gradually phase out the "throwback rule" on income of multi-state corporations over a seven-year period, starting in the tax year starting on or after Jan. 1, 2024, and be complete in tax year 2030. The law is projected by the finance department to reduce general revenue by $10.6 million in fiscal year 2024 and ultimately reduce general revenue by $74 million a year in fiscal year 2030 and thereafter.
In a special session in August 2022, the General Assembly and then-Republican Gov. Asa Hutchinson enacted a four-pronged tax cut package that the finance department projected will reduce state general revenue by $500.1 million in fiscal 2023, $166.6 million in fiscal 2024, $69.5 million in fiscal 2025, $18.4 million in fiscal 2026, and $8.4 million in fiscal 2027.
The package included acceleration of a reduction in the state's top individual income tax rate from 5.5% to 4.9% retroactive to Jan. 1, 2022, and a cut in the state's top corporate income tax rate from 5.9% to 5.3%, effective Jan. 1, 2023. It also included a $150 income tax credit for taxpayers making up to $87,000 and $300 for married couples filing jointly making up to $154,000.
The August 2022 special session came after the state reported a record general revenue surplus of $1.628 billion in fiscal 2022.
State Rep. Rebecca Burkes (right), R-Lowell, and other members of the House Committee on Revenue and Taxation listen as House Bill 1007, which would reduce the state’s top corporate and individual income tax rates, is presented to the committee on Wednesday at the state Capitol in Little Rock. (Arkansas Democrat-Gazette/Thomas Metthe)