Americans for Prosperity, the political organization funded by the Koch fortune, has announced dissatisfaction with Gov. Asa Hutchinson’s plan to focus a round of income tax cuts on lower-income taxpayers left out of his earlier $100 million cut.
Hutchinson said yesterday that it was fair to cut $50 million in taxes on people making less than $21,000 a year, in part because they are most likely to immediately put the savings back into the economy in purchases. Hutchinson also has a plan to exempt military pension income from taxation and says he envisions a future income tax cut in the top income brackets, with a hope to eventually reduce the top tax bracket from 6.9 percent to 5 percent.
Not good enough for AFP.
“Governor Hutchinson’s proposal to provide income tax relief for low income Arkansans is a good starting point for the 2017 session, and we applaud his commitment to continue reducing income taxes,” said David Ray, state director of AFP Arkansas. “But as we move into 2017, legislators should build on this plan to simplify our tax code and address our top income tax bracket of 6.9 percent, which is uncompetitive with neighboring states. Arkansas is at a competitive disadvantage with neighboring states because of its top income tax rate, and we can no longer afford to side-step that fact.”
On the other end of the spectrum, Democratic Rep. Warwick Sabin of Little Rock has been making the point on Twitter today that a more effective way to help the working poor is to give them an earned income tax credit. That idea was defeated two years ago and Democrats hoped to use muscle on the House Revenue and Taxation Committee in 2017 to push the plan again. It’s been suggested to me, however, that the Democratic power play actually spelled doom for the plan, seen as too presumptuous for a party with, now, only 24 of 100 House seats.
I suspect Sabin is right about the superior stimulus value of an earned income tax credit. Even conservatives at the national level laud it as economic strategy. But poor folks don’t employ many lobbyists in Arkansas. That’s why Hutchinson’s decision to focus all the next tax cut — beginning in 2018 if state revenues allow — on the poor is all the more remarkable. It won’t be easy. Other Republicans, such as Rep. Charlie Collins, won’t be happy without more tax cuts in the top brackets. They would disproportionately benefit the wealthy, but that’s the point.
The Department of Finance and Administration in the Hutchinson era will no longer supply detailed income tax figures as it routinely did for years under previous administrations. But I do have some 2013 figures to give you a more detailed idea of what a cut in the top bracket could mean.
In 2014, more than 500,000 taxpayers reported income in excess of $35,000, where the top bracket kicks in, and paid some $2 billion in taxes.
But look closer at how that breaks down, based on 2013 figures, when some 37,000 taxpayers reported income of $100,000 or more. Those 37,000 paid about $835 million in taxes. Give them a reduction in the top rate from 7 to 5 percent and you’re looking at a savings for those 37,000 taxpayers of roughly $230 million, more than five times the cost of Hutchinson’s proposed modest help to 650,000 working poor people. You can see why the Koch billionaires would like a little love on their end of the scale.
Even a half-percent cut in the top bracket would reap more than $50 million for a relative handful of taxpayers.
Further, based on the 2013 numbers, about 44 people reporting more than $5 million in annual taxable income could have saved $18 million, or roughly $400,000 each on average, with a 5 percent top tax bracket.
Money, by the way, knows no boundaries. It tends to go where it finds the highest return. The borders of Arkansas are no bar to that movement. It’s a fiction to believe that tax cuts for the rich automatically trickle down on the lowly in Arkansas.