Taxes are an important tool for prosperity

Taxes are how we fund our government. The Arkansas state budget is an important policy tool for protecting, serving, and helping all Arkansans achieve their full potential. It should reflect our shared values. We have an obligation to fund priorities that facilitate success for all children, families, and communities around the state. 

Arkansas has cut individual and corporate taxes several times over the past several years. Thanks to these cuts, Arkansas is losing about $1.8 billion annually in general revenue.  

Are you happy with the services and programs the state provides for you and your community? For example, you may be dissatisfied with long waits for services for people with disabilities. You may have trouble accessing preschool options for your children. You may be alarmed by the highest rate in the country of women dying from pregnancy-related causes. You may be frustrated by the lack of affordable housing in your town. 

Imagine what the state could do to alleviate these problems and more with $1.8 billion a year.  

Now is not the time for additional tax cuts for many reasons: 

• Let’s think beyond “surplus.” Until the state stops underfunding and even refusing to fund programs and priorities needed for a prosperous Arkansas, we must stop calling it a “surplus.” Yes, a financial or budget director will agree that tax revenue minus government expenditures equals surplus (or deficit). That’s the technical term. In reality, however, some in the Legislature are using the “surplus” as a slush fund to temporarily cover the cost of repeatedly cutting income taxes.   
• We are moving backward. It’s been well reported that the Arkansas 2024-25 budget, as presented by the Governor and approved by the Legislature, demonstrates a 1.76% increase in spending over the current fiscal year. According to recent projections from the Arkansas Department of Finance & Administration, the Consumer Price Index — a measure of inflation — is expected to increase by 3.3% in the next year. This means that the new budget isn’t keeping pace with the cost of doing business. The Governor and Legislature are working to raise state employee salaries. But as the population grew by 4% over the past 12 years, the state government workforce grew by only 2%. Again, not keeping pace. 
• A race to the bottom? Many Arkansas legislators and government officials have stated that we must eliminate all income tax to match the surrounding states that are doing the same. But differentiating through conformity is not an effective strategy for attracting corporations and people to our state. Instead, families and businesses want a state government that meets their needs, a state with great public schools, affordable housing, quality childcare, and comprehensive mental and physical healthcare. 
• The tax system is already unfair. Recent tax cuts have been to the top tax rate. As of now, for those families making $60,000 or less, 12% of the family income goes to taxes. But for those families in the top 1%, only 6% of the income goes to taxes. The additional proposed tax cuts will make this problem even worse. If the Legislature reduces the top personal income tax rate to 4.0%, as is now being discussed, general state revenue will decrease by an additional $250 million annually. Those in the top 1% by family income will see an additional $4,400 because of the tax cut. However, those making $65,000 or less will see an additional $42 or less. That’s a 100x difference.  Finally, making up lost revenue through other means, such as property taxes or sales taxes, hurts working families even more. 
• The Governor’s priorities are expensive. The Governor saw her policy priorities enacted by the Legislature during the 2023 Regular Session through the LEARNS Act and the Protect Arkansas Act. These initiatives are expensive as the state provides the Education Freedom Account vouchers for private and home schooling and builds prisons. While the Governor has not yet provided long-term estimates, we do know that the LEARNS Act accounts for most of the 1.76% budget increase previously mentioned. In fact, a full 60% of the $109 million budget increase is attributed to Education Freedom Accounts alone. Beginning in 2025-26, vouchers are available to all students; if all students currently in private schools in Arkansas participate in the voucher program, it will cost the state more than $200 million a year. 
• A healthy income tax system provides stability even under economic uncertainty. Arkansas has a unique tool, the Revenue Stabilization Act, which protects the state budget from economic uncertainty and recession. But that only works if the state has healthy general revenue streams. It has only been a year since the latest tax cuts, not enough time to understand any future trends in revenue. With a lack of understanding of the future costs of the LEARNS and Protect Arkansas Acts, now is not the time to cut taxes. And once tax cuts are enacted, it is almost impossible politically to reinstate them. 

Any additional income tax cuts now equate to a lack of strategic investment in Arkansas. We know that workers, families, and communities drive the Arkansas economy. Providing opportunities for every Arkansan to thrive is the purpose of state government. Effective programs and services lead to prosperity for the state. This is how we attract more people and business to Arkansas.  

Watch Arkansas Advocates Executive Director Keesa Smith on Capitol View with Roby Brock.