The House and Senate approved the income tax cut legislation that will primarily benefit high-income taxpayers, but also includes a one-time $150 tax credit for most, but not all taxpayers.
Approval came after some resistance from minority Democrats over state priorities — the wealthy over teacher pay and essential state services. In addition to reducing the top individual tax rate, the bill reduces the top corporate tax rate and provides more tax cuts for businesses in a change in state law to conform with federal tax law on deducting expenses. The permanent corporate tax cuts are worth about $160 million on top of the $449 million in permanent personal income tax cuts. The tax credits will cost $90 million, but the state hasn’t broken down how that will be parceled out among income categories. Those with no income tax due will get nothing and only the amount owed up to $150.
The House voted for the bill 80-13.
The Senate voted for the bill 29-5.
In the Senate, Democratic Sen. Keith Ingram reiterated concerns that the state could be found to have relied on federal pandemic relief money to provide tax cuts and the federal government could seek to recover the money. The Hutchinson administration has said it has concluded Arkansas is not at risk. He also said the state could afford with its surplus to provide some tax cuts and pay teachers more.
Democratic Sen. Joyce Elliott said she hadn’t heard from a single high-income person saying they “needed” a tax cut. She spoke emotionally about the needs of poorer people and raising teacher pay. “When we say we can’t do something, all we are doing is making excuses.”
Democratic Sen. Clarke Tucker noted the disparity in tax brackets as the legislature has flattened the progressive tax tables. “After today, someone who earns $24,300 will pay the same top tax rate as someone who makes $100 million.” The same for a starting school teacher or school bus driver. He said a tax cut could be passed along as well as some help for low earners. He said the well-off would actually be helped by lifting up the lower-income population and preparing them for better jobs.
Democratic Sen. Linda Chesterfield said the $150 tax credit was just a “bone” thrown to low-income people. And none who qualify will see the money directly, but only as a credit on tax returns. The state should be more concerned about “the least among us.”
Republican Sen. Alan Clark said all taxpayers should pay the same rate — zero. But also said, though he will vote for the bill, that there was a risk of the federal government seeking a refund of relief money.
Republican Sen. Jonathan Dismang, a lead sponsor, said lower-income taxpayers got some cuts last year (outweighed by the value of cuts for high-end taxpayers) and that the legislation this year only speeds up a previously approved three-year plan for reducing the top income tax bracket from 5.9 to 4.9 percent retroactive to Jan. 1. He emphasized tax cuts for lower-income taxpayers last year that eliminated income taxes on some of the poorest taxpayers.
In the House, Democratic Rep. Andrew Collins also objected to legislative priorities. He said the $150 non-refundable tax credit is all lower-income people receive in this year’s tax cut legislation and many low-income people will receive little or none of this credit. He proposed a bill, ruled out of order by House Speaker Matthew Shepherd, that would have made the tax credit fully refundable. He also said the tax cuts that the wealthy will receive won’t encourage businesses to expand, to pay their employees more or encourage companies to move to Arkansas. “We have incredible needs in our state … another tax cut for the wealthy is the wrong approach.”
Democratic Rep. Tippi McCullough also said she wished the money could be spent in more meaningful ways, on essential state services, such as teachers. She also commented that the $150 tax credit “certainly can’t be stretched very far.”
Republican Rep. Joe Jett, sponsor of the House version of the tax cut, insisted all would benefit, citing a figure of savings for low-income taxpayers including last year’s tax cut and the tax credit. And he said it was only right to provide something for the productive people at the higher end of the income scale.
After approving the tax cut legislation, the Senate quickly passed the bill to provide $50 million for grants to school districts for school safety, but only after approval by the legislature. The vote was 30-1.
Committees in the House and Senate met later in the morning to endorse the identical measures sent from the opposite houses, setting the stage for final passage Thursday and the end of the special session.
UPDATE: The Department of Finance and Administration computed some figures to show the impact of tax cuts at various income levels. It’s a little misleading. It includes in tax benefits the cuts given to lower last year. That tends to gloss over how little they are receiving in this year’s legislation — a $150 tax credit which many won’t receive and some negligible savings because of minor adjustment in lower tax brackets ($9 for someone making $20,000 in taxable income, for example.)
In terms of impact of this year’s tax legislation, a worker making the median taxable income of about $26,000 will realize about $29 in new tax cuts. Not counting the one-year tax credit, she will pay $210 less in taxes on that income in 2022 than in 2021. Someone with $250,000 in taxable income will see a $2,417 tax cut.