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

Arkansas is tied with Tennessee for having the highest average state and local sales tax rate at 9.47 percent, according to a .

ACRE Scholar and Assistant Professor of Economics Dr. Jeremy Horpedahl discussed the relationship between Arkansas’s high sales tax rate and special elections in an interview with Paul Harrell on Conduit News on Thursday, July 18. 

Special elections are elections held for a specific purpose that occur on dates other than primary or general election dates.

Horpedahl attributes Arkansas’s high sales tax burden partly to local governments having “a lot of discretion” to hold elections on sales tax increases throughout the year. While most states allow some kinds of local-option sales taxes, Arkansas is .

Horpedahl said:

Most of these sales tax special elections…almost all of them, 83 percent, take place during some time other than the general or primary election. What we also found is that voter turnout is much, much lower during these special elections. We found that on average voter turnout is only 19 percent for these special elections while it’s over 40 percent for general elections. Finally, these sales tax increases are much more likely to pass during a special election. Three-fourths of them pass if they’re during a special election and fewer than half of them pass if it’s in a general election.”

For more, check out our one page summary of our research on this topic.

Former ACRE Program and Research Assistant Aaron Newell’s op-ed, “,” published by Arkansas Business on March 11th, discusses our research and legislation that would’ve limited special elections to primary and general election dates with certain exceptions. 

You can also watch Horpedahl’s testimony regarding his research on special elections and sales taxes at a House State Agencies and Governmental Affairs committee meeting on February 13 .

Arkansas legislators made many improvements to the tax code during the 2019 legislative session, but is there more to be done?

ACRE Scholar and BTĚěĚĂAssistant Professor of Economics Dr. Jeremy Horpedahl and the Tax Foundation’s Vice President of Federal and Special Projects Nicole Kaeding answer in the affirmative in “Talk about taxes,” an op-ed published on May 31 in the Arkansas Democrat-Gazette.

Horpedahl and Kaeding begin by outlining numerous changes the Legislature made to the tax code in the 2019 session. These include dropping the corporate income tax rate from 6.5 percent to an eventual 5.9 percent, enforcing a sales tax on Internet purchases, and increasing gas and diesel taxes. For a full summary of the many tax changes during the previous session, check out Horpedahl and Kaeding’s blog post at the ACRE Review on April 11th.

However, Horpedahl and Kaeding spent most of the op-ed explaining one change: individual income tax cuts.

Horpedahl and Kaeding said:

Changes to the individual income tax will most directly impact your budget. In 2019, the Legislature once again reduced individual income-tax rates, the third time since 2015. The most recent changes primarily impacted high-income Arkansans, but what are the cumulative changes since 2015? For a single taxpayer earning $20,000, income taxes in 2021 (when the law is fully phased in) will be about $154 less than without these changes. That’s a 30 percent cut in the amount of income taxes paid. A single individual earning $50,000 will see a $333 cut in 2021 compared with 2015, or about a 14 percent cut. A single individual earning $100,000 will have the income tax bill lowered by $367, or a 6 percent cut. And since Arkansas has no marriage penalty, two-income households can roughly double these amounts.”

Legislators should improve on these reforms by following the advice in Arkansas: The Roadmap to Tax Reform, written by Horpedahl and Tax Foundation experts, and use revenue gains from broadening the sales tax base to further reduce the top individual income tax rate.

Generally speaking, income taxes are more harmful to the economy than sales taxes, because income taxes reduce the incentive to work and create or expand businesses. Shifting the tax burden in this way would create more jobs and investment in the state without reducing government revenue.

Horpedahl and Kaeding said:

First, we argued that it is very possible to reduce the top income-tax rate to 5 percent, as well as lower other income-tax rates. Important progress was made in this area, but Arkansas still has four neighboring states with lower individual income-tax rates (two at zero percent). We also recommended extending the sales tax to a number of goods and services that are currently exempt or partially exempt. While the second recommendation may seem like a big tax increase, these two ideas are linked: broadening the tax base allows us to lower tax rates while keeping overall government revenue relatively constant.”

You can read their 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

By Aaron Newell

Comprehensive reforms – not special tax incentives – are key to making Arkansas a  more economically competitive state says Jeremy Horpedahl, ACRE Scholar and BTĚěĚĂAssistant Professor of Economics, who recently discussed with Paul Williams at Law360.

This act, sponsored by Sen Bart Hester (R-Cave Springs) and , includes many of the provisions suggested by the Arkansas Tax Relief and Reform Task Force last year. In the (gated) article “,” published on April 8, 2019, Horpedahl explains how broad based reforms like the ones included in SB576 are good policy.

Horpedahl states:

Research has shown that targeted incentives have not had any effect on convincing companies to locate here. . . This is more of a broad-based package that makes the tax code more attractive as a whole.”

This broad-based package Horpedahl references includes:

• Requiring out-of-state sellers and marketplace providers to collect sales tax, which will generate about $35 million a year in extra revenue
• Lowering the corporate income tax rate from 6.5% to 5.9% by 2022, which will cut taxes by about $30 million a year
• Extend the state’s five-year net operating loss carryforward period to 10 years by 2021
• Collect a tax on water that car washes use and tax online travel companies that book hotel stays through their web platforms
• In 2021, the state will move to a single-sales-factor apportionment from its three-factor formula that counts a business’s property and payroll and double-weights its sales

Concerning this last change, Horpedahl told Law360:

Single-sales-factor apportionment is a simpler method for computing your tax liability, and it favors in-state businesses by generally lowering their corporate income tax obligations.”

Many of these changes come straight from recommendations from the Arkansas Tax Relief and Reform Task Force. Dr. Horpedahl, along with Nicole Kaeding of the Tax Foundation, both testified before the Task Force and further helped inform the discussion by through their research and writings, such as “Arkansas: The Road Map To Tax Reform” and “Learning from Other States’ Successes and Failures in Tax Reform.”

If you want to see more of Horpedahl’s work on tax issues, you can view his author page here.

If you want to see more of ACRE’s work on these and related issues, go here.

By Caleb Taylor

What were the major tax reforms passed by Arkansas legislators during the 2019 session?

ACRE Scholar and BTĚěĚĂAssistant Professor of Economics Jeremy Horpedahl and the Tax Foundation’s Vice President of Federal and Special Projects Nicole Kaeding outlined the recent “series of tax reforms to improve the competitiveness of the state’s tax code” in the Natural State in an article published on April 11th for the Tax Foundation.

The reforms encompass various parts of Arkansas’s tax code including the individual income tax, the corporate income tax and sales tax.

Reforms mentioned by Horpedahl and Kaeding include:

• Dropping the corporate income tax rate from 6.5 percent to 6.2 percent in 2021, followed by another decrease to 5.9 percent in 2022.
• Changing the apportionment factor from a double-weighted sales approach to a single-sales factor, which will favor businesses with a physical location in Arkansas compared with the current formula.
• Extending the net operating loss carryforward period from five years to 10 years.
• Requiring remote collection by sellers with more than $100,000 in sales or 200 transactions.
• Cutting the top income tax rate from 6.9 percent to 5.9 percent in 2021 and consolidating the six brackets into three (although the three sets of brackets based on income level will remain).

Other reforms include administrative changes to the franchise tax, a gas tax increase to fund infrastructure, and a tax expenditure review that requires the Department of Finance and Administration to prepare biennial reports about the cost, distribution and impact of each tax expenditure.

Horpedahl and Kaeding said:

Many of these recommendations come directly from our as well as our frequent testimony to . Both authors presented on multiple occasions to guide the thinking of the task force as it considered tax reform proposals in Arkansas. Arkansas’s diligent study of the issue has paid off with comprehensive tax reform in the Natural State.”

You can read their full post over at the Tax Foundation .

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

On February 13th, Rep. Justin Gonzales, R-Okolona, presented House Bill 1402 in front the House State Agencies Committee, which would limit special elections to just two dates a year – either at a primary or general election, or their corresponding dates in off years. Dr. Jeremy Horpedahl was invited to testify to the committee about his research on special elections. He explained how low voter turnout is during special elections (19%) compared to general elections (44%), and how the pass rate is much higher during special elections. He’s quoted in Jeannie Roberts’ article, “” in the Arkansas-Democrat Gazette about the committee meeting.

Arkansas has the in the nation at 9.43%. One reason for that is special elections. In 1981, the Arkansas legislature began allowing cities and counties to increase their sales tax rate and many did. 83% of the time, these increases are voted on during special elections. Special elections are usually single issue elections that happen outside of regular voting at a primary or general election. How important are special elections to the increases in taxes? In 2016, BTĚěĚĂassistant professor of economics and ACRE Scholar Dr. Jeremy Horpedahl and Alexandria Tatem, a BTĚěĚĂSchedler Honor’s College student and an ACRE student worker (who has now graduated), began gathering data on all sales tax elections in Arkansas since 1981, including ones at both special elections and normal elections.

What they found was interesting. Special elections to increase the sales tax have much lower turnouts and much higher pass rates than votes held at a primary or general election. Specifically, they found that voter turnout was 44% in general elections, 26% in primary elections, and 19% in special elections. The pass rate for these increases in the sales tax rate was 45% in general elections, 56% in primary elections, and 77% in special elections. It’s easy to see why Arkansas’s sales tax rate is so high, since 82% of all sales tax votes they collected occurred in a special election. Dr. Horpedahl also conducted statistical analysis with the data and found that turnout has an independent effect on the outcome. That means that even within special elections, higher turnout increases the share of “no” votes.

Dr. Horpedahl and I have updated the data to include elections through 2018. We collected data on 30 more elections, and the results still hold. The percent of special elections in the entire dataset increased to 83%, voter turnout stayed the same for general elections and special elections and decreased by 2% for primary elections, dropping to 24%. The pass rate for each election shifted slightly, moving general elections to a pass rate of 46%, primary elections to a pass rate of 61%, and special elections down to a pass rate of 76%. Please download our one page summary of the data to see more.

We have also mapped where the highest sales taxes are in the state. Below you’ll see a weighted average sales tax (which includes both county and city sales tax) for each county using county and city populations.

We have also updated the total estimated cost for hosting each election, based on data we obtained directly from local government statements for a sample of elections. Previously, the costs of all the special elections was $7.4 million, but after adding the new elections and updating the numbers for inflation, the total cost to taxpayers is $9.8 million for holding these elections. This is not just the cost of doing business or the cost of democracy – this is money that could be completely saved if the elections were to be held at the same time as primary or general elections.

The cost of allowing these special elections is high. It is part of the reason that Arkansas has the third highest sales tax burden in the country. 83% of sales tax increase ballot issues have been held at a special election, and since these elections have low voter turnout and a high pass rate, Arkansas’s sales tax burden has been creeping upward and upward. In addition to the cost a high tax burden imposes, taxpayers have also paid nearly $10 million for elections to increase their taxes.

Currently, cities and counties have a great deal of discretion when deciding when to hold special elections. Arkansas lawmakers considered a bill in 2017 that would change the timing of special elections. was designed to increase voter turnout by requiring that all special elections must be held at a primary or general election in even years, and in May or November in years without a primary or general election. Arkansas lawmakers considering similar legislation should understand the costs and benefits of allowing these special elections when considering changing the law concerning special elections. Limiting the timing of special elections to general and primary election dates would increase voter turnout, lower sales taxes in the long run, and save money by eliminating the need to pay for separate elections.

You can find a video of Dr. Horpedahl’s , starting at 10.25.55
You can find more of Dr. Horpedahls’ research here
You can find more of ACRE’s research on taxes and spending here

Arkansas dropped three spots from 43rd to 46th from 2018 to 2019 in the Tax Foundation’s annual .

The report was released on September 26th and is authored by the Tax Foundation’s Jared Walczak, Scott Drenkard and Joseph Bishop-Henchman.

According to the authors, the index is “designed to show how well states structure their tax systems and provides a road map for improvement.”

Arkansas is ranked 46th in the 2019 Business Tax Climate Index. Taxes factored into the score include corporate income (40th), individual income (40th), sales (44th), property (26th) and unemployment insurance (34th). Being ranked 46th means that only 4 states are worse than Arkansas (they are Connecticut, New York, California, and New Jersey).

Nicole Kaeding, Director of Special Projects at the Tax Foundation, told legislators at an Arkansas Legislative Tax Reform and Relief Task Force meeting on September 26th that the drop in rank was mainly a result of other states reforming their tax code recently.

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 legislators:

Your score did fall by three spots. It was largely not because you all made changes, but it was that other states moved ahead of you. Arkansas is falling behind because you’re standing still.”

The task force approved the so-called “Option A” plan on August 22nd to reduce the top individual income tax rate from 6.9 percent to 6.5 and consolidate its rate schedules.  The plan would cut taxes for individuals by about .

However, a separate plan released by the Department of Finance and Administration (DF&A) is also being considered. This plan would reduce the top individual rate even further, to 5.9 percent, while also increasing the standard deduction for taxpayers.

Kaeding said:

All else being equal, I’d pick the DF&A plan over Option A. It goes a long way to simplify your individual income tax structure, resulting in fewer brackets. It also, on a revenue basis, has a bigger bang for its buck.”

In to legislators, Kaeding noted that both plans would improve Arkansas’s overall tax competitiveness as measured by the Tax Foundation’s Small Business Tax Climate index. The plans would improve Arkansas’s corporate and individual income tax rankings while sales, unemployment insurance and property tax rankings would remain unchanged.

More of ACRE’s research on taxation can be found here. Kaeding and Horpedahl were co-authors of an op-ed published in the Arkansas Democrat-Gazette entitled “” on September 13th. Note that this op-ed was written prior to the new Tax Foundation data release, and Arkansas’s 39th rank on the previous version of their Index is not directly comparable to the current rank.