Arkansas Advocates for Children and Families has completed an analysis of Gov. Asa Hutchinson’s income tax cut plan and, as I predicted this morning, it’s an even bigger boon to the rich than the first. Also, it might be much more costly than Hutchinson has said in reducing state revenue.
Because his original plan for almost $200 million a year in tax cuts had the perverse effect of raising some taxes for 200,000 middle-income people, the governor did a quick reboot. It’s simple. It does away with bigger standard deductions, does far fewer revisions to tax tables and delivers a $97 million annual tax cut by dropping the top marginal rate from 6.9 percent 5;9 (an effective 15 percent tax cut) on all those making more than about $80,000.
Wowser.
Almost 70 percent of the tax cut goes to people making more than $456,000 a year. Based on the most recent tax tables available to me (from 2016), that’s a tiny number of people. That year, 4,739 of 1.17 million tax filers made more than $500,000. Let’s go crazy and estimate 1,000 in 2018 made more than $456,000. That still means less than one percent of taxpayers will reap 70 percent of the $68 million benefits, an average of more than $6,000 each. But take heart: If you make $50,000 a year you’ll save 40 cents a week in income taxes.
Another 20 percent, or roughly $19 million, goes to taxpayers in the $250,00 to $456,000 range. In 2016, that would have been roughly 12,000 taxpayers, the top 1 percent.
In sum, then, the very richest get 90 percent of the benefits.
Those making more than $94,000 but less than $250,000 will get virtually all of the rest, though only a relative token.
This is going to make Arkansas competitive, the governor insists. It is good to starve other state services to put $97 million in the pockets of a relative handful of the richest people in the state, many of them beneficiaries of inherited wealth, not work. It will trickle on the rest in the customary fashion, I’m sure.
The Advocates summarize this giveaway to the rich more calmly than I:
The Arkansas Department of Finance and Administration (DFA) estimates the Governor’s income tax cut plan will cost $97 million in lost state tax revenue. However, the ultimate costs are likely to be significantly higher. When modeled at 2019 income levels (instead of 2016 income levels the DFA used), estimates of the cost of the fully-phased tax cut comes in at $157 million annually according to the Institute on Taxation and Economic Policy. Because the proposed tax cut is directly tied to the incomes of upper-income taxpayers (incomes >$200,000), the cost of the governor’s proposal is going to increase as incomes of the wealthiest Arkansans do. And because incomes continue to grow much more quickly for higher-income Arkansans than low- or middle-income taxpayers, the cost of this top-heavy tax cut will just continue to increase over time.
An analysis by the Institute on Taxation and Economic Policy (ITEP) shows that the benefits of this proposal are even more heavily skewed towards the richest taxpayers than the previous version. That’s because there are no changes to the standard deduction, and all the significant changes in marginal tax rates only affect taxpayers with more than $80,500 in income.
According to ITEP’s analysis, only 28 percent of taxpayers would see any tax cut at all – down from more than 40 percent in the previous version. No taxpayer making less than $36,000 would receive a tax cut, but 99 percent of the top 1 percent – Arkansans making more than $456,000 a year or more – would. And those Arkansans in the top one percent would be getting 70 percent of the benefits of the tax cut. Overall, Arkansans making more than $94,000 would receive 98 percent of the benefits of this tax cut – leaving the other 4 in 5 Arkansans with essentially no tax relief at all.
To put that in perspective, the size of the average tax cut for an Arkansan in the middle 20 percent of taxpayers – those making between $36,000 and $56,000 – would be $6. The top 1 percent would receive an average tax cut of $7,964.
Wowser. And then there’s a big kicker. It could cost half again more than the governor has estimated in lost state revenue. Said the Advocates:
The Arkansas Department of Finance and Administration (DFA) estimates the Governor’s income tax cut plan will cost $97 million in lost state tax revenue. However, the ultimate costs are likely to be significantly higher. When modeled at 2019 income levels (instead of 2016 income levels the DFA used), estimates of the cost of the fully-phased tax cut comes in at $157 million annually according to the Institute on Taxation and Economic Policy.
Because the proposed tax cut is directly tied to the incomes of upper-income taxpayers (incomes >$200,000), the cost of the governor’s proposal is going to increase as incomes of the wealthiest Arkansans do. And because incomes continue to grow much more quickly for higher-income Arkansans than low- or middle-income taxpayers, the cost of this top-heavy tax cut will just continue to increase over time.
The result: Harm to public services.
It would also come on the heels of at least $300 million in tax cuts that have been enacted since 2013. If adopted, the Governor’s tax plan would mean less revenue in the state budget to pay for programs that are critical to the future well-being of Arkansas’s children and families, including funding for high quality pre-k, juvenile justice reform, funding for afterschool and summer programs (the Positive Youth Development Act), K-12 education, environmental protection, and highways and roads just to name a few.
This should not stand. But it probably will.
