INCOME
TAX CUT EMERGES AS ISSUE
"There is significant evidence that
reductions in marginal state tax rates encourage state economic growth ...Rates
on productive behavior should be reduced."
“Reduce
the state's income tax…repeal the state's capital gains tax.” Arkansas Policy
Foundation, Murphy Commission project, 1998
(July
2014) Arkansas state government's $78.7 million general-revenue surplus in the
fiscal year (2013-14) that ended June 301 illustrates it is possible
to cut income tax rates without cutting state programs.
The
Murphy Commission, a Policy Foundation project, spent three years reviewing
Arkansas' tax system before publishing two 1998 studies2 that concluded rates were
a factor affecting economic development.
The Murphy Commission recommended cutting state income tax and capital
gains rates.3
The
U.S. economy has been expanding since June 2009, and Arkansas state government
recorded surpluses totaling more than $500 million in the previous three fiscal
years (2010-11, 2011-12, and 2012-13).
Hutchinson Proposal
The
top income tax rate (6.9%)4 could be reduced to at
least 6.7%, with larger reductions in lower brackets
if the surplus was applied to cutting rates.
Income
tax rate reduction has emerged as an issue in the governor's race. Republican
nominee Asa Hutchinson has proposed cutting the
state's income-tax rate from 7% to 6% for individuals earning between $34,000
and $75,000, and from 6% to 5% on those earning between $20,400 and
$34,000." Hutchinson said he would
act in his first year as governor.5
Surpluses
are occurring because the economy is in the expansion phase of the business
cycle.
1 "State rolls up surplus of $78 million
for year," Arkansas Democrat-Gazette,
July 3, 2014
2 Taxes And Savings In Arkansas (Dr. S. Keith Berry) and Improving Productivity By Reducing Taxes
(Dr. Ronald John Hy and Dr. R. Lawson Veasey). They are posted online at the Policy Foundation's
site (www.arkansaspolicyfoundation.org) at the Murphy Commission link.
3 The capital gains rate has been cut from 7.0
to 3.5%.
4 Effective in 2015.
5 Arkansas
Democrat-Gazette, May 11, 2014