by Max Brantley
According to an analysis by the Institute on Taxation and Economic Policy (ITEP), House Bill 1585 would target personal income tax relief to Arkansas taxpayers who make over $155,000 per year (the top five percent of earners). This group would receive one-half (50 percent) of the total benefits resulting from the 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 and would receive over one-fourth (26 percent) of the total benefits of the proposed cut. The next highest four percent, those with incomes between $155,000 and $346,000, would see an average tax cut of $301 and would receive 24 percent of the total benefits.
The bill doesn’t offer many benefits to middle-income Arkansas families. 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 — just three percent of the total benefits from the tax cut. The bottom 40 percent of Arkansas taxpayers, those who make less than $29,000, would see no tax cut (on average) and their share of the bill’s benefits would be
There are Republicans who would tell you that OF COURSE the tax-cut bill is disproportionately geared to the high-income. The poor folks are takers, cosseted by free schools and highways and other government handouts. The rich people are job creators — you know those multi-millionaire Walton heirs who slaved long hours for the millions in dividends they receive on inherited stock.
Fairness is one issue. Running state government is another. Says AACF:
The bill raises several important issues. First, given HB 1585’s estimated large state revenue loss of $57 million, can Arkansas afford this bill at the current time, especially given the number of other expensive tax cut bills that appear to have serious momentum at this time (there are bills to reduce sales and use taxes on manufacturers for utilities and for equipment repair, and a bill to reduce capital gains taxes, just to name a couple)? Governor Beebe has already proposed a balanced budget that reins in government spending with no room for tax cuts. Much of the budget, including quality pre-K, child welfare, and juvenile justice programs have already been flat funded in recent years. This bill will only take resources out of the revenue base for future years that are necessary for crucial public services like education, health care, and public safety, that help build the foundation for future economic growth.
There IS a better way. Rep. Warwick Sabin has proposed a revenue neutral way, HB 1926 to make the tax brackets fairer and extend a little tax relief at the same time to couples making up to $244,000 by increasing the standard deduction for nearly everyone and adding a 7.5 percent tax bracket for income above $75,000 (or $150,000 for a married couple filing separately on the same form). He explains:
It updates the Low Income Tax Tables and then adjusts other tax brackets accordingly, and it increases the Standard Deduction from $2,000 to $5,000 for single filers and from $4,000 to $10,000 for married couples.
Many taxpayers at all levels take the Standard Deduction, so the tax relief will be widespread. The Arkansas Department of Finance & Administration estimates that 32.4 percent of taxpayers utilize the Standard Deduction.
By updating the Low Income Tax Tables and adjusting the other tax brackets accordingly, we will completely eliminate the income tax burden for Single taxpayers with taxable income up to $12,800; Heads of Households with one or less dependents with taxable income up to $18,600; Heads of Households with two or more dependents with taxable income up to $21,200; Married couples with one or less dependents with taxable income up to $23,600; and Married couples with two or more dependents with taxable income up to $26,200.
Furthermore, it potentially provides at least some tax relief for Single/Head of Household taxpayers with taxable income up to $121,600; Married couples with one taxable income up to $164,715; and Married couples with two incomes with a combined taxable income of $244,000!
This kind of targeted tax relief is important for several reasons. First, our current income tax brackets were set in 1971, and they were not indexed for inflation until the late 1990s. Even then, the indexing was not retroactive, which means that Arkansas tax brackets are extremely regressive and therefore disproportionately hurt low-to-middle income taxpayers.
Second, these taxpayers are most likely to use this tax relief for in-state economic stimulation. They will direct their spending toward immediate needs at local businesses, at grocery stores, at Walmart, etc. Therefore, this tax cut will have a big positive impact on the Arkansas economy.
Perhaps most importantly, this tax cut proposal is revenue neutral, which means that it will not impact other fundamental state needs, like education, health care, and human services.
For this reason, it preserves the ability for us to follow through on Gov. Beebe's goal of finally eliminating the Grocery Tax. And in this way, my bill can provide tax relief for all Arkansans and be a Double Tax Cut for those who need it the most.