Arkansas income tax cut proposals expected to go to governor’s desk Wednesday

Rep. David Ray, R-Maumelle, makes a case to his fellow legislators to support tax cuts during a special session on Tuesday, June 18, 2024. (Mary Hennigan/Arkansas Advocate)

CORRECTION: An earlier version of this story contained an incorrect corporate tax rate for April 2023 and has been updated.

The Arkansas House and Senate on Tuesday each passed its version of two identical bills that seek to cut income taxes, setting up the conclusion of a special legislative session on Wednesday.

The legislation would lower the top corporate income tax rate from 4.8% to 4.3% and the top individual income tax rate from 4.4% to 3.9%, retroactive to Jan. 1 of this year. House Bill 1101 passed the House Revenue and Tax Committee on Monday while Senate Bill 1 passed the equivalent Senate committee.

Later on Tuesday, each committee passed the bill from the other chamber with no debate or dissent. Both chambers had suspended the rules so that bills could be discussed in committee without any mandatory waiting periods.

The tax cuts would be the state’s third in 15 months. In April 2023, the Legislature approved more than $100 million in tax cuts , reducing the top individual tax rate from 4.9% to 4.7% and the top corporate tax rate from 5.3% to 5.1%. During September’s special session , legislators lowered the top individual and top corporate income tax rates to 4.4% and 4.8%, respectively.

Reducing the top income tax rates should make it easier “to recruit companies and individuals to the great state of Arkansas,” said Sen. Jonathan Dismang, R-Searcy, the Senate sponsor of both bills.

The tax cuts would reduce the state’s general revenue by a cumulative $483.5 million in fiscal year 2025, which begins July 1, and by $322.2 million each fiscal year afterward, according to the state Department of Finance and Administration’s fiscal impact report on the legislation.

The bills require $290 million in general revenue to be set aside in a reserve fund in case the money is needed to make up for any decrease in state general revenue due to the tax cuts.

Republican lawmakers have said that the state’s budget surplus means taxes are too high and that reducing income taxes will keep money in the pockets of working people. Democrats have said the cuts will primarily benefit wealthy Arkansans and reduce the state’s ability to fund its services.

Senate Minority Leader Greg Leding and Rep. Denise Garner, both Fayetteville Democrats, spoke against the tax cuts in their respective chambers.

“I know cutting taxes is easy, it’s great in an election year… but there are things we can do to more meaningfully help make life a little bit easier for everyday Arkansans,” Leding said.

He suggested putting money into the as-yet-unused Arkansas Housing Trust Fund, creating a tax credit for people who rent their homes and making two-year community and technical colleges tuition-free.

Garner said the state should not cut taxes while the cost of Education Freedom Accounts, the school voucher program created by the LEARNS Act of 2023, is still undetermined since it is not yet available to all Arkansas families but will be next year. She also said the state could invest in programs that reduce its high rates of maternal mortality, infant mortality and teenage pregnancy.

Rep. David Ray, R-Maumelle, said cutting taxes does not mean the state is not invested in making life better for Arkansans.

“We can walk and chew gum at the same time,” Ray said. “There are always going to be societal problems and things that we have to address, and many of the people in this room, almost all of us, are working on policies that alleviate those problems.”

Arkansas Coalition for Strong Families held a press conference on the first floor of the Capitol early Tuesday afternoon, where coalition co-chair and Arkansas Support Network CEO Syard Evans listed a wide range of policy issues that lawmakers could focus on instead of cutting taxes, such as funding the foster care system, services for people with disabilities and broader internet access.

“Our state has far too many unmet needs and unfulfilled promises to once again push forward with more income tax cuts,” Evans said.

SB1 will go to the House floor for final approval Wednesday, and HB1001 will go to the Senate floor. Gov. Sarah Huckabee Sanders has expressed support for the tax cuts and is expected to sign them into law.

Additionally, the House passed House Bill 1002 and the Senate passed Senate Bill 3 , identical bills to increase the homestead property tax credit from $425 to $500. Lawmakers previously increased the tax credit from $375 to $425 during the 2023 legislative session .

The credit is available to property owners on the property that is their primary residence, reducing their real property tax liability, which is paid at the county level.

The homestead tax credit bills passed with bipartisan support, and the House and Senate Revenue and Tax committees each passed the bill from the opposite chamber with no debate or dissent later on Tuesday. The legislation is expected to pass each chamber again Wednesday and go to Sanders’ desk.

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