Arkansas’ highest personal tax rate cut Jan 1 to 5.5%
Arkansas’ highest personal tax rate fell to 5.5% on Saturday, the first day of the new year, in what state officials say is the biggest cut in tax of state history.
Other changes include: the low and middle income tax tables will be consolidated; a non-refundable tax credit will be created for low-income taxpayers; and the standard tax deduction will be adjusted according to the cost of living. The highest rate was 5.9%.
State officials predict that Acts 1 and 2 of the December 7-9 Special Legislative Session will reduce the state’s general revenue by $ 135.25 million in fiscal year 2022, which ends on June 30, gradually increasing each year to reach $ 497.9 million by fiscal 2026.
Supporters of the cuts have said every taxpayer will benefit and the tax breaks will not come at the expense of essential government services.
House Speaker Matthew Shepherd R-El Dorado said the House of Representatives, Senate and Governor Asa Hutchinson each have their own elements included in the income tax cut law.
Shepherd said he had pushed for a significant reduction in the top personal tax rate on behalf of the Republican House caucus.
Senator Jonathan Dissman, R-Searcy, promoted the consolidation of the low and middle income tax tables, and Representative David Ray, R-Maumelle, advocated adjusting the standard tax deduction according to the cost of the life.
Hutchinson said the tax cut law’s purpose is twofold.
âFirst of all, we wanted to continue the record tax break that has benefited taxpayers at all income levels over the past few years,â the Republican governor said in a written statement.
“Thanks to a reduction in average incomes in 2015, a reduction for low-income Arkansans in 2017 and the overall reduction of 5.9[%] plan, we have demonstrated our ability to provide significant tax relief while maintaining and supporting government services. “
Second, Hutchinson said he was certainly aware of the environment in which Arkansas competes with other states for job creation and expansion.
âMy goal has been to bring the individual rate down to 5.0%,â he said. “The recent tax cut law brings us there. Largest tax cut in state history is yet another indication to businesses that sustaining a world-class business environment is a priority in Arkansas. “
Most Democratic lawmakers opposed the income tax cuts.
They said the tax cuts benefit the rich, while having little impact on low-income people.
Democrats said the money saved would be better spent on meeting the needs of the Arkansans.
âArkansas is not a rich state, of course, but we can still be extraordinary,â Representative Denise Garner, D-Fayetteville, said at the December special session.
“All Arkansans can prosper, but not with this tax plan. Low and middle income Arkansans will reap very little benefit from it,” she said. “Those lucky enough to be in the 1% of Arkansas … will see their taxes go down on average by more than $ 10,000, but most Arkansans will only see the drop from $ 40 to $ 60 or so. equivalent of a family dinner at a fast food restaurant. restaurant. Focusing tax cuts on serving the rich will benefit Arkansans far less than using those dollars for popular programs. “
LAST BIG CUP IN 2007
The biggest tax cut in Arkansas history was Bill 110 of 2007, which reduced the sales tax on groceries from 6% to 3%, said Scott Hardin, spokesperson. word of the Ministry of Finance and State Administration.
State officials predicted that Law 110 of 2007 would reduce state revenue by $ 122.1 million in fiscal 2008 and $ 131.2 million in fiscal 2009, according to the Arkansas Democrat-Gazette reports at the time.
Democratic Governor Mike Beebe, who served from 2007 to 2015, led the legislature to reduce the sales tax on groceries over time.
On January 1, 2019, the sales tax on groceries was reduced from 1.5% to 0.125%, which is a tax for conservation collected under the state constitution.
TAX REDUCTION DETAILS
Acts 1 and 2 of the December special session reduced the existing three tax tables to two by combining the low and middle income tables, effective Saturday.
The new table applies to those whose net taxable income does not exceed $ 84,500, while the high income tax table applies to those with net taxable income above $ 84,500.
The top personal income tax rate, now 5.5% on Saturday, falls to 5.3% in one year.
The maximum rate will apply to net taxable income between $ 39,700 and $ 84,500 for people in the combined low and middle income table, and to incomes of at least $ 8,501 for people in the high income table.
If no transfer from the state’s catastrophic reserve fund, formerly known as the long-term reserve fund, is made between July 1, 2022 and December 31, 2023, the highest personal tax rate drops to 5 , 1% on January 1, 2024. The rate drops to 4.9% under certain conditions a year later.
If the rate drops to 5.1% but a catastrophic fund transfer is made between January 1, 2024 and December 31, 2024, the maximum rate does not drop to 4.9% on January 1, 2025.
Shepherd said the tax cut triggers in the law provide a “safety net” for state programs and services.
The state’s chief financial officer may transfer funds – with the approval of a legislative panel – from the reserve fund to cover a shortfall in order to meet the state’s financial obligations to fund schools and operate. the state government. The shortfall is expected to occur under circumstances where general revenue is expected to increase by less than 3% from the previous year due to economic issues.
The finance manager may also transfer funds from the reserve fund to the economic development superproject fund under Amendment 82 to the Arkansas Constitution.
Laws 1 and 2 create a non-refundable income tax credit for taxpayers whose net income does not exceed $ 24,700 and who file their tax return on time. Taxpayers whose net income does not exceed $ 23,600 will receive $ 60 in credits, with the credit reduced for each $ 100 of additional income.
The laws require the state to increase the standard deduction through a cost of living adjustment beginning in tax year 2022.
The standard deduction for individuals will remain at $ 2,200 and $ 4,400 for a married couple filing jointly, Hardin said.
Texas and Tennessee do not have personal income tax, according to the Federation of Tax Administrators.
On New Years Day, Arkansas’ highest personal income tax rate of 5.5% exceeds Louisiana’s 4.25% rate, Oklahoma’s 4.75%, 5% from Mississippi and 5.4% from Missouri, according to information from the Tax Foundation.
Arkansas’ highest corporate income tax rate of 6.2% fell to 5.9% on Saturday, under a 2019 state law.
Acts 1 and 2 of the extraordinary session will reduce the corporate interest rate from 5.9% to 5.7% on January 1, 2023.
This rate will drop to 5.5% on January 1, 2024, unless funds are transferred out of the catastrophic reserve fund between July 1, 2022 and December 31, 2023, under Laws 1 and 2.
Unless a transfer of the reserve fund is made between January 1, 2024 and December 31, 2024, another planned decrease in the maximum rate, to 5.3%, will take place, under acts 1 and 2.
On New Years Day, Arkansas’ highest corporate tax rate of 5.9% exceeded Missouri and Oklahoma’s 4% and Mississippi’s 5% rate, but was lower than the Highest corporate tax rate in Tennessee 6.5% and Louisiana 7.5%, according to information from the Tax Foundation. Texas has no corporate tax.
Hutchinson said government officials âmust remain aware of our competition and take action, where possible, in order for economic development to be successful.
âWhile businesses take many factors into account when expanding or moving, taxes are certainly one of those key factors, along with location, workforce and education,â he said. -he declares.
FORECASTS FOR THE FUTURE
At the 2021 regular session, the General Assembly and Hutchinson adopted a general revenue budget for fiscal year 2022 totaling $ 5.84 billion.
For fiscal 2022, the finance ministry projects a surplus of $ 264.4 million at the end of the fiscal year, based on its latest forecast released on Dec. 16.
The planned general revenue budget for fiscal year 2023, which begins July 1, is $ 6.01 billion, with an additional planned transfer of $ 54.9 million to what is now known as the catastrophic fund.
The General Assembly will consider the promulgation of the general revenue budget for fiscal year 2023 during the fiscal session which begins on February 14.
In fiscal 2021, Arkansas general revenue surplus set an official record, totaling $ 945.7 million. The surplus allowed the state to increase its reserves to more than $ 1.2 billion, Hutchinson noted in July.
Information for this article was provided by Rachel Herzog of the Arkansas Democrat-Gazette.