The include lowering the top marginal personal income tax rate from the current 5.9% down to 5.3%, consolidating the lower- and middle-income tax brackets, and providing a small personal tax credit for low-income taxpayers. Horpedahl explained that all of these changes will benefit Arkansas taxpayers, especially those in the middle part of the income distribution who will benefit from both the rate cut and the bracket consolidation.

The table below shows how the proposed changes would impact five sample taxpayers throughout the income distribution in Arkansas.

The estimated budgetary cost of these changes would be about a $300 million decrease in the state’s general revenue budget. Dr. Horpedahl said that this is a large tax cut, about equal in size to all the tax cuts passed in the 2015, 2017, and 2019 legislative sessions. But Horpedahl also said this tax revenue reduction will not cause any major cuts in government services in Arkansas, since it is about the size of the normal annual increase in the general revenue budget in Arkansas. The tax changes are possible to enact by slowing the increase in the size of state government, but would not require major reductions in the roughly $6 billion general fund.

For more of ACRE’s work on taxes, transparency, and state finance, please see the following:

Shine More Light – Policy Analyst Mavuto Kalulu advocates for more state fiscal transparency in administering COVID-19 relief funds.

Reducing Arkansas’s Income Tax Rate To Zero – Dr. Jeremy Horpedahl discusses the steps necessary to completely repeal the Arkansas individual income tax.

The Road Map To Tax Reform in Arkansas – Dr. Jeremy Horpedahl outlines a series of reforms state lawmakers could enact to improve Arkansas tax policy.

Arkansans Could See Big Savings from Special Session – ACRE Policy Analyst Joseph Johns and Dr. Jeremy Horpedahl discuss how Arkansans could benefit from potential income tax cuts in the upcoming special legislative session.

Dr. Jeremy Horpedahl and I spoke with Ryan Norris, State Director of the Arkansas Chapter of Americans for Prosperity, on his . Our conversation focused on the and more broadly about both tax and spending issues in Arkansas over the past few years.

The first half focusd on the during a planned upcoming special session. The two competing plans have potential benefits for different taxpayers. For example, a household earning around the median income of $43,000 stands to save at least $200 per year. This is a modest savings on a yearly basis. However, the proposed reforms set the stage for further reductions in the individual income tax in future legislative sessions.

Dr. Horpedahl explained the need to consider other tax reform pathways. These include eliminating the tax cliffs that happen when Arkansans earn slightly higher incomes. These slightly higher incomes and are taxed at higher rates on substantially similar income levels. He also recommended indexing the standard deduction, or the amount exempt from state income taxes to inflation. Without inflation indexing, the standard deduction becomes less valuable to taxpayers over time. This is critical since  by an annualized average of 5.3% relative to 2020. Indexing the standard deduction makes Arkansas’s tax code more consistent since “all other elements of Arkansas’ tax code are already indexed to inflation.”

The second half of the discussion centered on state spending trends and finding ways to restrict spending while maintaining essential government services. The RSA came out of the depression-era economic situation when Arkansas defaulted on its state debt. After two to address taxes and debt, legislators adopted the RSA in the 1940s to consolidate around 100 different funds and prioritize state spending into categories (for example, the 2022 budget has four categories, A through D).

Dr. Horpedahl spoke about the importance of the RSA to state spending by reminding listeners that the RSA mandates spending cuts when the state collects less revenue than anticipated. This prevents the state from spending beyond its means and prioritizes essential spending necessary for the state government to carry out its constitutional responsibilities. It is also important to remember that the legislature must fully fund Category A to ensure continued support for essential government services. The RSA does not prevent increased spending if the tax revenues come in high.

Norris then transitioned to the state’s Long-Term Reserve Fund. Dr. Horpedahl suggested that while this fund has grown significantly in the past several years, there are still loose rules governing withdrawal from the fund. The state should consider ways to limit the Long-Term Reserve Fund from being misused for imprudent purposes. I also spoke about a that requires any excess state revenue to be returned to taxpayers.

There are specific steps that Arkansas could take to provide meaningful tax relief. The state should build on currently proposed income tax reforms, consider ways to guard LTRF balances, and keep Arkansas competitive with its neighboring states. Adopting these reforms puts the Natural State in an even stronger fiscal position.

See more of ACREs work on taxes, transparency, and occupational licensing reform below:

– Dr. Jeremy Horpedahl provides a non-partisan summary of Governor Hutchinson’s 2019 tax reduction plan on Capitol View.

– Dr. Horpedahl explains the necessary steps for Arkansas to eliminate its individual income tax.

– Dr. Jeremy Horpedahl proposes alternatives to increasing the sales tax to fund road construction. He cites equity and tax competitive concerns since Arkansas has a relatively high sales tax, relative to its neighboring states.

Occupational Licensing Review Committee Kicks Off Second Session – ACRE Policy Analyst Zach Burt summarizes his testimony on Seed Dealer Licenses before the Occupational Licensing Review Subcommittee.

– ACRE Policy Analyst Joyce Ajayi explains the need for increased transparency of school district budgets to discourage opportunistic behavior of financially burdened teachers.

ACRE Director David “Mitch” Mitchell and I spoke on the on Monday, October 4^th, 2021, about the upcoming Arkansas special legislative session. We discussed two main tax cut bills currently under consideration by the legislature. The first plan, by Joint Budget Committee Co-Chair Senator Jonathan Dismang [R-Searcy] would reduce the top marginal rate from its high of 5.9 percent to 4.9 percent and consolidate the low-and-middle income tax brackets. The second plan requested by Governor Hutchinson and created by the Department of Finance and Administration (DF&A), would keep the three-bracket structure, lower the top rate to 5.5 percent and lower the 5 percent rate to 4.5 percent by 2023. Arkansas taxpayers will benefit the most under the Dismang plan due to the steeper cut in the top marginal rate.

I also spoke about the effects of the “tax cliff “and how Arkansans who earn as much as one more dollar could be taxed by as much as $180 more “for the privilege of earning that extra dollar.” We both reminded listeners that Arkansas is competing against other southern and midwestern states with lower individual income tax rates. Staying competitive is key to enhancing Arkansans well-being and economic vitality.

Tax triggers are tax reductions applied when the state meets pre-established revenue targets. Tax triggers have been used in several states. Our LTRF is currently around $1 billion and could be used to help enhance the effects of the proposed income tax cut plans as state revenue recovers.

the need for the legislature to place rules around how the Governor could use the state’s Long-Term Reserve Fund (LTRF). Without rules we don’t know how the next governor or legislature will spend that money.

Mitchell also discussed the advantages of lowering individual income tax rates now because of Amendment 19 to the Arkansas State Constitution. Amendment 19 requires that three quarters of the Arkansas legislature or a majority of voters approve an increase in the individual income tax. Mitchell said that Amendment 19 would “make it almost impossible for legislators to raise the income tax” after lowering it.

Elswick also discussed the need to cut the state sales tax to pursue even bigger tax savings during the session. Mitchell suggested the legislature spend its time focusing on the income tax since Amendment 19 doesn’t create that higher three-quarters bar for raising the sales tax. Amendment 19 was adopted in 1934 and preceded the state sales tax which was adopted the following year in 1935. Therefore, it only acts as a constraint when the legislature considers increasing the individual income tax.  The next legislature could just raise the sales tax and saddle taxpayers with that extra burden.

Elswick also discussed the need for state-level , the main focus of ACRE Policy Analysts Mavuto Kalulu and Joyce Ajayi, to help keep Arkansas state lawmakers accountable to their voters and encourage legislators to spend the massive COVID-19 relief spending wisely.

Our three main points are:

• Cutting the income tax rate allows Arkansans to receive more gains from their own work and helps keep Arkansas competitive when looking to attract jobs and talent to the state.
• Cutting income taxes can be done in such a way as to preserve government spending on commonly agreed upon public priorities such as infrastructure and K-12 education.
• Making these changes now can also sustain lower income taxes for many years to come due to the higher standard imposed by Amendment 19 to raise income tax rates.

ACRE Scholar Dr. Jeremy Horpedahl and I also co-authored an op-ed in the that discusses on Arkansas taxpayers. A more thorough analysis of the impact of these two plans can be found on the ACRE Review blog.

For more of ACRE’s work on taxes, transparency, and state finance, please see the following:

Shine More Light – Policy Analyst Mavuto Kalulu advocates for more state fiscal transparency in administering COVID-19 relief funds.

Reducing Arkansas’s Income Tax Rate To Zero – Dr. Jeremy Horpedahl discusses the steps necessary to completely repeal the Arkansas individual income tax.

The Road Map To Tax Reform in Arkansas – Dr. Jeremy Horpedahl outlines a series of reforms state lawmakers could enact to improve Arkansas tax policy.

Arkansans Could See Big Savings from Special Session – ACRE Policy Analyst Joseph Johns and Dr. Jeremy Horpedahl discuss how Arkansans could benefit from potential income tax cuts in the upcoming special legislative session.

Access Arkansas: County-Level Web Transparency – ACRE Policy Analysts Mavuto Kalulu and Joyce Ajayi created the Arkansas Transparency Index to help keep Arkansas government accountable to the public.

The Arkansas legislature may be meeting in the near future to consider changes to the income tax that individuals, families, and small businesses pay. So far we are aware of , and more could be proposed at a special session this fall. The plans proposed are one by State Senator Jonathan Dismang and another by the Department of Finance and Administration (requested by Governor Hutchinson).

We wrote about this plans and other possibilities for Arkansas in our recent op-ed, “” published in the Arkansas Democrat-Gazette.

While the plans differ in specific details, both provide tax relief for both middle- and high-income earners. The table below shows how these proposals would lower taxes for different households in Arkansas, as well as a third plan which combines elements of both plans.

As we explain in a recent op-ed for the Arkansas Democrat-Gazette, any tax relief is great news for Arkansas taxpayers, as it allows them to control more of their own earned income. The median household in Arkansas could expect around $300 in tax savings each year if the most aggressive parts of both plans are enacted, and many other families could receive tax cuts even larger than those shown in the table above.

Creating an environment conducive to household and personal economic growth is a good goal for the legislature to consider during the upcoming special legislative session. These tax cuts come after three previous sessions where legislators reduced Arkansas taxpayer burdens. Households could be poised to receive even more relief in the coming weeks.

Details of the Plans

The first plan is proposed by Senator Jonathan Dismang [R-Searcy] and would consolidate the low- and middle-income tax brackets, and lower the top marginal income tax rate from 5.9 percent to 4.9 percent by 2026. The Dismang Plan would eliminate the tax cliff between the low- and middle-income tax bracket by merging them together. This would help those who choose to work more and who could be on the hook to pay more in taxes for earning just slightly more money this year.

The second plan from Governor Hutchinson and Department of Finance and Administration (DF&A), would keep the three-bracket structure, and lower the top marginal income tax rate from 5.9 percent to 5.5 percent by 2023. This Plan would also lower the 5 percent tax rate on income between $22,900 and $38,499 to 4.5 percent by 2023. This plan has a few more details that would include some modifications to rates in the lower-income bracket, as well fixing the income tax cliffs between the low- and middle-income sets of tax brackets.

Lowering the individual income tax and consolidating the overly complex three bracket structure will make Arkansas more competitive with its neighboring states as well as other southern states. For instance, tax to a flat tax of 5.25 percent, and several of Arkansas’s neighboring states . Arkansas is in a very competitive tax environment. As we stated in our op-ed:

our neighbors aren’t standing still either: Mississippi has seriously considered eliminating their income tax. Oklahoma recently lowered their top rate to 4.75 percent, and Missouri will lower their top rate to 4.8 percent over the next several years (using revenue triggers, something discussed in the Arkansas plans too). Voters in Louisiana will soon decide whether to lower their top rate down to 4.25 percent, which would once again make Arkansas the highest in the region if we make no changes. Even Tennessee, where they have never had an income tax on wages, finished phasing out their tax on investment income this year.

In ACRE’s 2016 book, Arkansas: The Road Map to Tax Reform, published jointly with the Tax Foundation, we suggested that Arkansas could lower its top income tax rate to 5 percent from the then 6.9 percent level to be more competitive in our region. At the time, our neighbors with income taxes had rates of either 5 or 6 percent. Given the recent changes in other states, our previous recommendations have even more importance today.

Of the two plans, Senator Dismang’s is more comprehensive and would provide larger tax cuts for middle- and upper-income taxpayers. This larger tax cut also means a larger reduction in state revenue, about $400 million in the long run versus about $200 million under the DF&A. Low-income Arkansans, those who earn less than $22,900 per year, would have the same tax burden under Senator Dismang’s plan, though they may see some relief under the DF&A/Hutchinson Plan.

Governor Hutchinson said he is willing to reduce top marginal rate as low as 4.9 percent as long as spending on education and healthcare are protected with special fiscal rules known as revenue triggers. require specific revenue targets to be met before tax cuts would come into effect to allow rates to fall further. The triggers would smooth state spending and avoid revenue shortfall perils that come with automatic, mandatory reductions in income tax rates.

Other Ideas for Tax Relief

Aside from revenue triggers, the Arkansas General Assembly could also consider taking up ideas from the last legislative session to provide further income tax relief. One such idea is to double the standard deduction for single and married filers. during the 2021 regular session that would have made this change. If this were the only change legislators decided to resurrect, a married couple earning $50,000 with one child would save around $260 a year just from this change.

If legislators decided to both adopt Senator Dismang’s tax plan and double the standard deduction, a married couple with $45,000 of income (Nathan and Sarah in our sample table) could expect to save around $432 per year under the combined Dismang-Doubled Standard Deduction plan (about $200 of that comes from the standard deduction change). A married couple filing separately with three children who earns $220,000 (Luke and Hannah in our sample table) could expect to pay around $2,200 less in income taxes under a hypothetical Dismang-Doubled Standard Deduction tax change (again, about $200 is from the standard deduction change).

The state of Arkansas is also more fiscally prepared than it ever has been to implement more income tax reforms due to the robust $1.2 billion balance of the Long-Term Reserve Fund (LTRF), a fund which didn’t even exist prior to 2016 when Governor Hutchinson began championing the idea of a budge stabilization fund. ACRE Director that ensure this fund is only used for true fiscal emergencies. Tax cuts should be made in a way that does not jeopardize the soundness of Arkansas’s balanced budget, but the LTRF’s robust balance could be used as a backstop for any unexpected revenue declines due to future economic downturns.

Finally, Arkansas needs to be able to compete with its neighbors for talent and jobs. Two of our neighboring states, Tennessee and Texas, have no state income tax and balance their budgets without it. In the long run, if it pursues responsible state spending patterns and prudent tax reforms now. A recent shows strong support for the general idea of eliminating the personal income tax in Arkansas.

For more of ACRE’s work on taxes, check out the below links:

Tax book: The Road Map to Tax Reform in Arkansas

Research paper: Lessons From Other States Tax Reform Attempts

More on State Taxes and Spending

By Caleb Taylor

Can Arkansas reduce its income tax burden to zero?

ACRE Scholar and BTĚěĚĂAssociate Professor of Economics Dr. Jeremy Horpedahl outlines how Arkansas can accomplish gradually reducing its income tax rate to zero percent in “” published in the Arkansas Democrat-Gazette on June 28th.

Horpedahl writes that gradually reducing the rate over three decades would be a “prudent and realistic” way to eliminate the income tax.

Horpedahl writes:

One current proposal is to reduce the top income tax rate from 5.9 to 5.5 percent. This is in line with past tax reforms and could be a part of a long-run strategy to get to zero. Cutting the top rate by that much every year is easy to absorb in the budget, and after about 30 years we could completely eliminate the tax. That’s a long time to wait, but it is both prudent and realistic.”

Fall Special Session

Arkansas legislators are expected to reconvene in the fall for a special session devoted to congressional redistricting and income tax cuts.

Although a specific plan hasn’t been announced yet by Gov. Asa Hutchinson or legislators, now is the “perfect time” to consider long-term plans for further income tax reforms, according to Horpedahl.

Horpedahl writes:

We all enjoy many government services, and those must be paid for, but not necessarily with an income tax. However, moving away from an income tax requires careful fiscal planning. A special session on taxes is the perfect time to think about long-run plans, and whether Arkansas wants to move in the direction of having a zero percent income tax.”

Arkansas’s top income tax rate currently stands at 5.9 percent. That’s higher than every surrounding state besides Louisiana, .

You can read the rest of Horpedahl’s op-ed .

By Caleb Taylor

Arkansas’s small businesses are still feeling the effects of the economic downturn from COVID-19, ACRE Director and BTĚěĚĂAssociate Professor of Economics Dr. David Mitchell said in a speech to about 25 Conway Kiwanis Club members at Larry’s Pizza on Wednesday, Nov. 4.

Mitchell said the Natural State could be better prepared for future recessions by improving Arkansas’s tax structure, lowering or removing some occupational licenses and funding and reforming Arkansas’s Long Term Reserve Fund.

Small Business Woes

The number of small businesses open in Arkansas has decreased by 21.2 percent as of September 29 compared to January 2020, according to .

That’s better than the national average of 24.1 percent but still nothing to celebrate, according to Mitchell. 

Mitchell said:

Small businesses are struggling. They don’t have access to capital markets like other (larger) businesses. For small businesses, it’s been really hard as you might guess. Everyone of these numbers has a story behind them. That’s someone whose business has closed. Arkansas is one of the states that didn’t do a full close down. I think it helped a lot but it’s still pretty brutal.”

State Tax Revenue

State taxes to fund government services has been a mixed bag so far in 2020, according to Mitchell. 

Sales taxes are above projections while individual and corporate income taxes are less than projected so far.

Mitchell said:

Sales tax revenue has actually been up. Sales tax revenue tends to be smoother than other types of revenue. It’s one reason why economists have a tendency to suggest that you depend more on sales taxes than some of the other taxes. It’s just smoother…it doesn’t go up and down like other types of revenue. Individual income and corporate income tax [revenue] has fallen. Corporate income [tax revenue] is just very, very volatile. When the economy is good, corporate income [tax revenue] skyrockets and then plummets when it’s bad. Individual income tax [revenue] is a little more stable, but it’s not as stable as sales taxes. Arkansas relies a lot on income taxes for revenues. That makes it very vulnerable during recessions. We should pick a smoother stream of revenue such as sales taxes.”

Possible Reforms

Mitchell concluded by recommending Arkansas policymakers reform the state’s occupational licensing burden.

Mitchell said:

Arkansas is a state that has a lot of regulations. We have a lot of occupational licensing for low to moderate wage jobs. Some might think that these are put into place to protect people, but sometimes these are just barriers to entry.”

For an example of a possible solution, check out ACRE Policy Analyst Alex Kanode and ACRE Scholar and BTĚěĚĂAssociate Professor of Economics Dr. Thomas Snyder’s op-ed “” (published in the Arkansas Democrat-Gazette on October 22) about a recent occupational licensing reform bill passed by the Missouri legislature, known as universal licensure recognition.

Mitchell also recommended Arkansas legislators consider enacting stricter deposit and withdrawal rules from the state’s Long-Term Reserve Fund, a kind of state savings account for rainy days, so the state will be better prepared for future recessions.

For more on Arkansas’s Long-Term Reserve Fund, check out Mitchell’s blog post entitled “Why Arkansas’s Long-Term Reserve Fund May Not Weather the Next Rainy Day.” 

Mitchell and Stansel’s paper entitled “” published in the Cato Journal analyzes how government spending increases during economic expansions worsen state fiscal crises.

By Caleb Taylor

How did a 2009 affect natural gas production in Arkansas? 

Not much, according to a forthcoming paper entitled “Examining the effect of Arkansas’s increased severance tax rate on natural gas production,” co-authored by ACRE Undergraduate Research Fellow Macy Scheck and BTĚěĚĂProfessor of Finance Dr. Mike Casey

According to the abstract of the paper:

This paper investigates the effect of Arkansas’s 2009 increase in the severance tax rate for natural gas in regard to the State’s production and investment. Economic reasoning suggests that an increase in this tax rate would prompt companies to look elsewhere for natural gas production. Using data from Southwestern Energy, this study compares both the Fayetteville Shale in Arkansas and the Marcellus Shale in Pennsylvania in terms of the average cost per well, production rate, and lateral length. This study finds that the severance tax rate increase had little to no effect on Southwestern Energy’s play selection. This implies that the decision to drill on one play compared to another comes down to a simple marginal cost-benefit analysis, in which the tax structure is one of many cost variables that factor into this decision.”

“Play selection” refers to where a company chooses to extract natural gas.

Scheck is a part of ACRE’s Research Fellowship Program. In this program, students work with a professor to write a publishable research paper. Scheck has been working with BTĚěĚĂProfessor of Finance Dr. Mike Casey to investigate the effect of Arkansas increasing its severance tax on natural gas production.

Macy Scheck is from Grand Junction, Colorado. He is a senior majoring in Economics and minoring in German.

For more of ACRE’s work on taxes, check out the below links:

The Road Map to Tax Reform in Arkansas

Lessons From Other States Tax Reform Attempts

More on State Taxes and Spending

In an op-ed published in the Arkansas Democrat-Gazette on February 15 entitled “,” ACRE Scholar and BTĚěĚĂAssistant Professor of Economics Dr. Jeremy Horpedahl and National Taxpayer Union Foundation Economist  Nicole Kaeding say Arkansas’s sales taxes have generally increased, income taxes have decreased, and property taxes have generally stayed the same over the past decade.

Arkansas Sales Taxes

Horpedahl and Kaeding on sales taxes:

The statewide sales tax stood at 6 percent in 2010, but it is now 6.5 percent after voters approved a temporary increase dedicated to highway funding in 2012. Cities and counties in Arkansas can also add their own sales taxes on top of the statewide rate. A decade ago these local sales taxes averaged about 2 percent across the state, while today they are closer to 3 percent. That means the combined rate that Arkansans paid, on average, has increased from to , just slightly behind Tennessee and Louisiana. Arkansas voters are being asked again to approve a permanent extension of that sales tax this fall. If voters approve the 0.5 percent tax for highways, and more local sales taxes increase (such as the proposed 1 percent tax in Little Rock), Arkansas could fight for the dishonor of the highest sales tax in the nation.”

One exception to this sales tax trend is the state sales tax rate on groceries which decreased from 2 percent a decade ago to â…› percent today, according to Horpedahl and Kaeding.

Arkansas Income Taxes

Horpedahl and Kaeding on income taxes:

Most visibly, the state’s top personal income-tax rate was 7 percent in 2010. This year it is being cut to 6.6 percent, and it will drop again next year to 5.9 percent. That’s a big improvement, along with the reduction in the corporate income-tax rate, which is being cut from 6.5 to 5.9 percent. But it’s not just high-income earners that have had their income taxes cut, as the top rate cut was the third step in Gov. Asa Hutchinson’s plan to reduce income-tax rates across the board. Two previous tax cuts directly benefited middle- and low-income taxpayers. While Arkansas’ three sets of tax brackets are complex, all taxpayers are now paying less in taxes, boosting their after-tax income. We estimate that low-income taxpayers are saving between $100 and $200 per year, while the middle class is saving between $300 and $400 per year. That’s a few meals out, a car repair more easily covered, or a surprise for the kids.”

Horpedahl and Kaeding say further income tax rate decreases to Gov. Asa Hutchinson’s eventual goal of 5 percent is “feasible” and would be a “welcome improvement.”

Arkansas Property Taxes

Horpedahl and Kaeding on property taxes:

Not too much has changed here. While some tax rates may have increased, on average these have been in line with increases in home value: Average tax rates for owner-occupied homes were about 0.6 percent in both 2010 and in the latest available data, but the homestead tax credit was increased by $25, which will lower property-tax bills slightly in future years.”

You can read the entire op-ed .

For more of ACRE’s work on taxes, check out the below links:

The Road Map to Tax Reform in Arkansas

Lessons From Other States Tax Reform Attempts

More on State Taxes and Spending

Arkansas Legislative Tax Reform and Relief Task Force members voted Wednesday, December 12th to prioritize a plan that includes a cut to the top individual income tax rate from 6.9 to 5.9 percent. The Task Force approved a number of other changes at previous meetings (such as to the corporate income and sales taxes), but the question of which individual income tax plan they preferred was unanswered until this most recent meeting.

Task force members approved a plan released by the Department of Finance and Administration (DF&A) in August known as the “2/4/5.9% Plan.” This plan would reduce the top individual rate to 5.9 percent for taxpayers making over $18,000. Those with taxable income between $8,001 and $18,000 would pay a 4 percent rate. Those with taxable income less than $8,000 would pay a 2 percent rate. The plan also more than triples the standard deduction for taxpayers, and consolidates Arkansas’s current three sets of tax brackets into a single set of brackets.

Implementing this plan over three years received the most support from task force members.

The task force also considered the so-called “Option A” plan to reduce the top individual income tax rate from 6.9 to 6.5 percent and consolidate its rate schedules (as the 2/4/5.9% plan does).  That plan would cut taxes for individuals by about . While Option A was recommended by the task force in August, the “2/4/5.9%” plan received greater support from members last week.

Nicole Kaeding, Director of Special Projects at the Tax Foundation, told the task force in October that both plans would improve Arkansas’s overall tax competitiveness. Kaeding cautioned members at the October meeting that Arkansas was falling behind due to standing still in tax competitiveness due to other states already moving on reform.

Kaeding and ACRE Scholar and BTĚěĚĂAssistant Professor of Economics Jeremy Horpedahl discuss some of the reforms other states have made to their tax code in Learning from Other States’ Successes and Failures in Tax Reform. Their op-ed on the same topic, “Reform Taxes Now,” in the Arkansas Democrat-Gazette on May 21st can be read .

Kaeding told members on December 12th that the “2/4/5.9%” plan was the better plan despite significant political challenges.

Kaeding said:

I think the Governor’s plan is the superior plan. I understand the questions about Amendment 19 and the higher vote threshold, but I think that plan gets you closer to where you want to go and it does it in a more fiscally responsible way.”

Amendment 19 requires a vote of three-fourths of support in both the House and Senate for legislation that increases taxes. The Governor’s “2/4/5.9%” plan would require a three-fourths majority because some tax rates are being increased, though with the large increase in the standard deduction very few taxpayers will actually see their tax bill increase. The “Option A” plan would only require a simple majority in both the House and Senate for passage since no rates are increased.

Curious about this Arkansas tax reform proposal affects you? Find out in a by Kaeding and Horpedahl.

More of ACRE’s research on taxation can be found here. This was the final task force meeting before the legislative session, but be sure to check the ACRE Review soon for what’s happening with tax reform in Arkansas.