As April 15 is Tax Day, it is important to reflect upon the critical role that income tax plays in Arkansas.
At tax season it is important to reflect upon the importance of taxes to a thriving community. Personal and corporate income tax contributed more than $5 billion, or 57%, to the state’s general revenue in Fiscal Year 2022. In turn, that revenue pays for services important to all of us, such as our public schools, health care, universities, and safety. In fact, about 40% — or $2.25 billion — of net general revenue supports our public schools. Simply put, income taxes are critical for all Arkansans.
The Governor’s proposed budget for Fiscal Year 2025, which the Legislature is considering in the current Fiscal Session, includes a minimal $109 million increase in general revenue spending. This 1.76% increase over the current year’s budget does not keep up with the rate of inflation over the past year, meaning we are moving backwards. Further, almost 60% of the increase is to fund Education Freedom Accounts, the LEARNS Act vouchers provided to parents of children in private or home school. There is only negligible investment in any other programs.
It is not true that the Arkansas tax burden is one of the highest in the country. In a recent analysis by WalletHub, a personal finance company, our state ranks in the middle third of all US states. In fact, our state is 32nd in individual income tax burden (first place California has the highest income tax burden in the country). Only two states have a lower property tax burden than Arkansas. Unsurprisingly, states with no income tax rank much worse than Arkansas in property tax burden as they seek to make up for the loss in revenue.
When you add up the cuts from the past ten years, Arkansas has given away $1.8 billion annually through income tax cuts, mostly to the wealthiest individuals and corporations. As the Governor and Legislature propose additional tax cuts, an additional personal income tax reduction of the top tax rate to 3.9% will result in an additional loss of $311 million annually. And who would see the benefits of this reduction? The wealthiest Arkansas would get an extra $5,500 in savings on average, while those making under $65,000 would see an extra $53 or less on average, according to a January 2024 analysis by the Institute on Taxation and Economic Policy. That’s a 100x difference. Income tax is equitable only when we all pay a fair share.
Taxes support the state budget, and the state budget supports all of us. As we prioritize important issues and needs, such as maternal and mental health, child care and early childhood education, affordable housing, hunger, and transportation, among others, it’s time to invest in our communities. We don’t have a budget surplus; we have underfunded programs. We don’t have to dream big to discover impactful ways to invest tax dollars in Arkansas. Arkansas thrives when we all thrive.