“Reduce the state’s income tax…repeal the state’s capital gains tax.” Murphy Commission, Policy Foundation project, 1998 “State revenues have exceeded forecasts: modest cuts in income … and capital gains rates can occur in 2013.” Policy Foundation, November 2012


(June 2013) Arkansas Republicans, in control of the General Assembly for the first time since Reconstruction reduced the top state income tax rate from 7.0 to 6.9% in the session that ended last month.  But the top rate could have been cut to 6.5% in the new fiscal year if policymakers had earmarked surplus state revenues for relief starting with the middle class.


A Missed Opportunity


The most recent monthly state revenue report shows net available general revenues are $172.4 million above forecast with one month remaining in the current (2012-13) fiscal year.1 State revenues are expanding because the business cycle’s state since June 2009 is expansion, not contraction.2  The current surplus, which could reach $200 million, follows surpluses in earlier post-recession fiscal years: $94 million (2010-2011) and $146 million (2011-2012).3 Despite surplus state revenue growth, budget forecasters (have) “cautioned that the Arkansas economy was not back on firm ground. Another slowdown in economic activity could force state agencies to tighten the reins on spending,” a view promoted by some Republican policymakers.4


Policymakers’ failure to earmark surplus revenues represents a missed opportunity to aid the middle-class5 and make Arkansas semi-competitive with other states in the region.6


–Greg Kaza

1  http://www.dfa.arkansas.gov/offices/directorsOffice/Documents/generalRevenue201305.pdf

2  State revenues tend to increase in expansions with a lag.  On June 2009 as the cyclical turning point in the current cycle see: Policy Foundation column, Arkansas Business Weekly, December 14, 2009; Policy Foundation research memo (September 20, 2010), “NBER Confirms Policy Foundation Finding Recession Ended in 2009.”

3  Arkansas DFA: http://www.dfa.arkansas.gov/offices/directorsOffice/Documents/generalRevenue201206.pdf

4  Senate President Pro Tempore Michael Lamoureux, R-Russellville: http://www.arkansas.gov/senate/newsroom/index.php?do:newsDetail=1&news_id=356

5  Policy Foundation research memo (November 2012), “How To Cut Taxes in Arkansas”

6 Arkansas’ rate is highest among the six states that border it, and second-highest in the region (January 2013): http://www.taxadmin.org/fta/rate/ind_inc.pdf