Brian ChilsonWhile the state Capitol has been embroiled in drama these past two days over Gov. Sarah Sanders’ attempts to fillet the Freedom of Information Act, the other major item on the agenda this special session is sailing by with barely a hiccup: cuts to the top tax rates for individuals and corporations.
The bill under consideration would cut the top state income tax rate from 4.7% to 4.4% and the top corporate rate from 5.1% to 4.8%, beginning in the 2024 tax year. It also gives a $150 nonrefundable credit to all individual taxpayers making up to $89,600 annually. It’s expected to cost the state $248.5 million in the current fiscal year and $184.5 million for years thereafter, according to a fiscal impact statement from the state Department of Finance and Administration.
The Senate passed its version of the bill, sponsored by Sen. Jonathan Dismang (R-Beebe), by a vote of 27-3 on Tuesday.
The House is lagging the Senate’s actions due to an earlier revolt by some Republicans opposed to the governor’s initial FOIA bill: They, along with Democrats, blocked a measure to suspend certain rules related to timetables in the legislative process, typically standard practice in special sessions to make legislation move more quickly. With the impasse over the FOIA apparently resolved, the House finally suspended the rules this morning and began plowing ahead with tax cuts.
The House Revenue and Tax committee approved Dismang’s bill around 10 a.m. today. It’s next up for a vote in the full House, where it’s expected to easily pass and head to the governor’s desk.
Once passed, it will be the third time in the past 12 months the legislature has slashed the top income tax rates. Critics of the bill say it’s yet another boon to well-to-do Arkansans and corporations, paid for by slowly starving state services and built on overly stingy economic forecasts. The bill’s sponsors have pushed back on the idea it only benefits the wealthy, noting the top tax rate applies to 1.1 million Arkansans.
It’s true that cutting the top tax rate will give some money to anyone making over $24,300 annually. That doesn’t mean the benefits are spread remotely equally, though. A person with a net taxable income of $30,000 a year would only see the reduced rate applied to $5,700 of their income (that is, every dollar earned above $24,300). Their overall annual state income tax bill would decline from roughly $830 to $810 as a result of this tax cut — less than $20. A person making $350,000 annually, meanwhile, would see their annual tax bill reduced by around $1,000.
Here’s the proposed change to the state tax tables as contained in the fiscal impact statement:
Along with the tax cuts, legislators have moved forward a related measure to put the bulk of the current state budget surplus into a new reserve fund that could be quickly tapped by the state if necessary.
Senate Bill 1 by Sen. Jimmy Hickey (R-Texarkana) would create the “Arkansas Reserve Fund Set Aside” out of roughly $711 million in general revenue. Hickey has said in committee hearings that the reserve fund bill does not allot money for the tax cuts; he’s described it as an “insurance policy” in case of a sudden economic downturn.
The state already has one such piggy bank — the so-called “catastrophic reserve fund,” which state finance officials have said contains about $1.5 billion. The difference is that Hickey’s fund could be drawn upon more easily, by a two-thirds vote of the Arkansas Legislative Council, or ALC, the body that meets periodically when the full legislature is not in session.
In Tuesday’s House Revenue and Tax committee, Rep. Delia Haak (R-Siloam Springs) said she was “concerned that a lot of our budget is going to be decided by ALC” and asked Hickey whether spending decisions shouldn’t be left to the full legislature.
Hickey said delegating spending power for the reserve fund to ALC could avoid the need to hold a special session to appropriate funds in case of an economic slowdown. It’s “a little bit more effective and efficient,” he said. Any appropriation approved by ALC would need to be accompanied by a letter from the Department of Finance and Administration requesting it, Hickey said.
