ARKANSAS POLICYMAKERS DELIVER 2ND BIGGEST INCOME TAX CUT IN U.S.

(September 2024) Arkansas policymakers delivered the second biggest income tax cut in the U.S. in the last decade, a 43.5% reduction that narrowly trailed national leader Arizona (44.9%) since January 1, 2015.

The enclosed chart shows top state income rates between 2015 and mid-2024.

Arkansas Governors Advanced Tax Cuts

Governors Asa Hutchinson (2015-2023) and Sarah Huckabee Sanders (2023-) advanced income tax cuts with the support of supermajorities of the state legislature. Under Hutchinson, the top income tax rate was cut from 6.9% to 4.9% in eight years, while Sanders reduced it from 4.9% to 3.9% in 1 1/2-years.

Arkansas Job Creation Rate Improves

The enclosed research memo shows Arkansas’ job creation rate was greater than the U.S. average in the period, an improvement from earlier periods.

Eleven States Did Not Adjust Rates

Nine states do not have an income tax. (1)  Policymakers in 11 other states did not adjust their income tax rates in the period.  These states are Pennsylvania (3.07%); Michigan (4.25%); Alabama (5.0%); Maryland (5.75%); Virginia (5.75%); Rhode Island (5.99%); Delaware (6.6%); Wisconsin (7.65%); Minnesota (9.85%); Oregon (9.9%); and Hawaii (11.0%).

Eight States Raised Rates                   

Eight states raised top rates. Massachusetts (74.8%) recorded the largest hike, followed by Illinois (32%); New York (23.6%); Kansas (21.3%); New Mexico (20.4%) New Jersey (19.8%); California (8.1%); and Connecticut (4.3%).

Most States Cut Income Tax Rates

Policymakers in 22 of 41 income tax states cut their top rate in the period. The following chart shows the cumulative percentage tax cut by individual state.

Rank          State                                         Percentage Tax Cut

1)                 Arizona                                   44.9%

2)                Arkansas                              43.5%

3)                Iowa                                        36.5%

4)                Ohio                                       34.3%

5)                Kentucky                                 33.3%

6)                Louisiana                               29.2%

7)                Idaho                                      23.0%

8)                North Dakota                         22.4%

9)                North Carolina                        21.7%

10)              West Virginia                          21.2%   

11)               Missouri                                  20.0%

12)              Nebraska                                14.6%

13)               Montana                                 14.5%

14)              Georgia                                   10.16%

15)               Maine                                     10.06%

16)              Oklahoma                                9.5%

17)               Utah                                          9.0%

18)              South Carolina                          8.57%

19)              Colorado                                  8.207%

20)              Indiana                                     8.196.%

21)              Mississippi                               6.0%

22)              Vermont                                   2.2%

Sources

(1) States without an income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire taxes dividends and interest at a 3% rate. Washington taxes capital gains at a 7% rate.

— Greg Kaza