Updated state income tax figures illustrate further how Gov. Asa Hutchinson’s preferred income tax cut plan would favor the rich.
The state last week said a plan preferred by Hutchinson to streamline tax tables, change marginal rates with a reduction of 14 percent on the tax rate in the highest marginal rate and increase standard deductions shook out this way in an overall reduction of $192 million.
* The poorest taxpayers, comprising 38 percent of all taxpayers, would get ZERO in the way of tax cuts. They’d actually see increased tax rates, allegedly to be offset by standard deduction increases.
* About half of all taxpayers, the middle 638,000 making between $20,000 and $80,000, would get an average of $75 each, or about 25 percent of the tax cut. Again some rates would actually rise, but be offset by standard deduction increases.
* The highest-income taxpayers, 170,000 taxpayers or about 13 percent of all taxpayers, would get a whopping 75 percent of the tax cut, an average of $850 each.
But that last is misleading. The benefits in that group will go overwhelmingly to the ultrarich.
Here’s what I mean:
In 2016, 4,739 Arkansas taxpayers reported more than $500,000 in taxable income, with a tax liability of $391 million. Under the new rates, take out taxes owed on the first $80,000 by that group, roughly $26 million, and you’re talking about $365 million in taxes at the top marginal tax rate, proposed to drop from 6.9 to 5.9 percent, or a cut of 14 percent. That’s a savings of roughly $50 million by my calculation, or better than $10,000 each for those taxpayers and more than a third of the overall tax
I’m hoping the state will provide the analysis available through its more precise counters to reveal the tax cut impact at every income level on a sliding scale because averages for big groups are misleading. For example, this top bracket tax cut is worth only maybe $85 to someone making $81,000, but worth $7,000 to someone making $810,000.
One real-life example: Two Arkansas residents named Walton, together have direct ownership of 13 million shares of Walmart stock, paying about $26 million a year in dividends. The Asa tax cut on those dividends alone, not their other considerable wealth, will put an additional $250,000 in their pockets. Chump change for them, I know.
For your information, here’s how income breaks down in Arkansas in 2016.
Here’s the final part of a phased-in Hutchinson tax cut plan (compare with
• Taxpayers making up to $8,000 a year would pay an individual income-tax rate of 2 percent.
• Between $8,001 and $18,000 would pay a 4 percent rate.
• Above $18,001 would pay a 5.9 percent rate.
Increases in the standard deduction would produce benefits against the current system — increased from $2,200 to $6,800 for single taxpayers and $4,400 to $13,600 for married taxpayers. The plan would retain the personal tax credit of $26.