Arkansas Lawmakers Approve Income Tax Cuts for Third Time in 15 Months
Arkansas lawmakers, led by Governor Sarah Huckabee Sanders, have successfully passed the state’s third round of tax cuts in just 15 months. The most recent move, signed into law during a special legislative session, will lower the top individual income tax rate from 4.4% to 3.9% and the top corporate income tax rate from 4.8% to 4.3%. This change became retroactive to January 1, 2024, immediately benefiting those who will see significant savings on their taxes.
Impact on Taxpayers Varies by Income
The new tax rates are expected to benefit approximately 1.1 million taxpayers in the state. The highest earners will enjoy the most significant savings. For instance, those reporting 0,000 in earnings should see a reduction of ,531 in their annual taxes. On the other hand, taxpayers earning the median household income of ,335 will see savings between 0 and 0. Meanwhile, around 800,000 individuals who earn less than ,000 will remain unaffected by the recent tax cuts.
Opposition from Democrats and Advocacy Groups
Democratic lawmakers and advocacy groups strongly opposed the tax cuts, arguing that the state should instead focus on funding essential services. They cited pressing issues such as maternal mortality and childhood poverty that require greater support. In addition, they expressed concern that the tax cuts would primarily benefit the wealthiest individuals, further widening the gap between rich and poor.
Financial Projections and Reserves
The tax cuts are projected to cost the state 5 million in the first year and 4 million annually thereafter. The legislation also sets aside 0 million from the state’s surplus into a reserve fund, which can be used in case of an economic downturn.
Homestead Property Tax Credit Also Increased
In addition to the income and corporate tax cuts, the homestead property tax credit was also increased from 5 to 0, retroactive to January 1, 2024. This change is expected to cost million and will be funded from an existing property tax relief trust fund.
