Legislature Cuts $438 Million a Year in State Income Taxes
LITTLE ROCK – Arkansas families and businesses will save more than $483 million in income taxes next year, thanks to a tax cut passed by the legislature during a three-day special session.
Also, Arkansas homeowners will see their property taxes go down by about $46 million because the legislature increased the homestead property tax credit from $425 to $500.
Senate Bill 1 had the major income tax reduction. It lowers individual income taxes for about 1.1 million Arkansas taxpayers by reducing the top rate from 4.4 percent to 3.9 percent. That will save taxpayers $384.2 million next year and $256.1 million in following years. The savings are higher next year because they actually include 18 months of savings, from January 1, 2024 to June 30, 2025.
After that, in a typical 12-month fiscal year the savings will be $256.1 million. Numerous lawmakers said that income taxes need to be lowered, even eliminated, in order for Arkansas to remain competitive with neighboring states. Every tax reduction makes it easier for the state to recruit industry.
The Senate bill also lowers corporate income taxes by changing the top rate from 4.8 percent to 4.3 percent. In the first 18 months it is in effect it will save Arkansas businesses about $99.3 million and then the savings will be about $66.2 million every fiscal year.
An estimated 7,800 corporations will get a tax cut, according to a fiscal impact statement by the state Department of Finance and Administration.
Property taxes will go down for assessment years beginning January 1, 2024, because of the increase in the homestead property tax credit. The second full year it is in effect it will save homeowners about $47 million.
The legislature met in special session to finalize a budget for the state Game and Fish Commission. It had to be done before June 30, the final day of the current fiscal year. If the legislature had not approved a budget, the agency would not have had authority to spend any of its funding on July 1.
The special session was scheduled to coincide with the week when the Legislative Council and its subcommittees hold their regular monthly meetings. That helped to hold down the costs of the session because so many lawmakers were scheduled to be at the Capitol anyway.
The legislature has always written very conservative budgets to keep down spending levels for state agencies. For example, state spending will grow by only 1.76 percent next year.
Even after accounting for the loss of revenue due to the income tax reductions, the estimated budget surplus next year will be $280.3 million.
Since 2013 the legislature, the current governor and the previous governor have approved a series of tax cuts that lowered state revenue by about $1.5 billion a year. For perspective, this year’s total general revenue fund will be $6.2 billion.
Arkansas operates under a balanced budget law, known as the Revenue Stabilization Act. If an economic downturn causes tax revenue to go down, state agencies must reduce spending by a proportionate amount.
However, the Public School Fund is protected from cuts because the state Constitution mandates that the state provide all children with an education. Other state services do not have similar constitutional protection from budget cuts.