Advocates holding out some glimmer of hope for legislation that would promote tax fairness did not have a good day at the Capitol on Tuesday. Two tax cut bills – one to cut the capital gains tax rate in Arkansas and another that would adjust income tax brackets, mostly in favor of the wealthy – passed out of the House Revenue and Tax Committee on Tuesday. Another bill, one calling for the establishment of a state-level Earned Income Tax Credit (EITC) was tabled in that same committee before members opted to provide windfall tax cuts for very wealthy Arkansans. The EITC was the only bill that would provide a much-needed boost to working families.

While we and others have continued to point out how unfair some of these tax proposals are – overwhelmingly favoring the wealthiest Arkansans – there is a broader point to be made here. When we, as a state, fail to invest in ourselves – especially in education programs that benefit our children – we’re taking a huge risk when it comes to our future economic prospects. Companies will come to Arkansas because we have a well-educated and trained workforce, not because we offer tax cuts at the expense of most of the population. We need to invest in Arkansas children and families to make sure we’re all working toward a brighter tomorrow for the entire state, not just a few of us.

Capital Gains Cut

The capital gains tax cut bill proposed by Speaker of the House Davy Carter passed in a special hearing yesterday afternoon. No one had seen the bill before the hearing began, so opponents of the bill had no time to organize or even analyze the proposed cuts. The bill would more than double the current exemption on capital gains, creating a boon to the very wealthy in the state and, at the same time, crippling potential revenues for vital programs like pre-K education, child care, and child welfare programs to name a few. If this bill becomes law, investors would receive $70 tax free on every $100 capital gain. An analysis we conducted on capital gains tax cuts revealed that 4 out of every 5 Arkansans would see zero benefit from a capital gains tax cut.

High Income Tax Cut

Earlier in the day, a bill that would target personal income tax relief to Arkansas taxpayers who make over $155,000 per year (the top five percent of earners) passed the same committee. The top five percent of earners would receive one-half (50 percent) of the total benefits resulting from the proposed tax cut. That’s compared to those who make $29,000 or less per year, who would get nothing.

The richest one percent of Arkansans, those with total incomes of $346,000 or more, would see an average tax cut of $1,275 per year. The middle 20 percent of Arkansas taxpayers (those making between $29,900, and $49,000 a year) would see an average tax cut of only $7. You can read more about why this is a bad bill here.

The bill would take away $57 million in state revenue during its first year of implementation, representing a significant loss for already underfunded programs that help Arkansas children and families become a strong and vital part of our local economy – all while failing to provide any substantive tax relief to most of the working men and women of Arkansas.

EITC

A state-level Earned Income Tax Credit (EITC) for low- and middle-income Arkansas taxpayers would create a much-needed break for Arkansas workers and their families. These families already shoulder a disproportionately high tax burden compared to those with higher incomes. Rep. Fred Love’s HB 1240 aims to solve that. Almost half of all Arkansas working households would qualify for this credit.

The EITC is based on work. Someone that works full-time at a minimum wage job will get a much bigger credit than a part-time worker. Also, a tax filer must be at least 25 years old to claim the credit. The EITC helps families that need it, and the credit keeps hard-working folks out of poverty. It’s targeted tax relief that works. Former President Ronald Reagan called the EITC “the best antipoverty, the best pro-family, the best job creation measure to come out of Congress.”

What’s Next?

Both the capital gains tax cut (HB 1966) and the high-income tax cut (HB 1585) will be considered by the full House of Representatives. The House could take up both bills as early as Thursday. Arkansas Advocates for Children & Families will continue to work with our partners and allies on strategies to try and stop these bills from advancing. We believe the Arkansas state budget already underserves programs that we know benefit children and working families. While we do not wish to see any tax cuts pass right now, to the extent tax reform passes it must focus on the working families of Arkansas. Neither of the two bills passed yesterday achieve that goal.