Tax Cut, Commodity Prices, Agriculture Boost Arkansas Income To 46th In U.S.

“In order for Arkansas to move from a low-wage to a high-wage economy, the state needs to decrease marginal tax rates … In order to attract (high-income) workers to Arkansas.” (Murphy Commission, 1998)

“Commodity booms in the 1970s and the last decade were an important factor in propelling growth in two western states (Wyoming, Alaska) without an income tax.” (Policy Foundation memo, “Achieving 100 Percent” (June 2007))

(November 2, 2009) An October release of income data from the U.S. Bureau of Economic Analysis shows Arkansas ranked 46th in per capita personal income1 (2008) for the first time since Alaska and Hawaii were admitted to the Union. Arkansas PCPI exceeded four states for the first time since the federal government initiated the time series.

Per Capita Personal Income, 2008

Connecticut ($56,272, 140%) led the 50 states followed by New Jersey ($51,358, 127.7%); Massachusetts ($51,254, 127.5%); New York ($48,753, 121%); and Wyoming ($48,608, 120.9%)

Arkansas has ranked second or third worst in income rank for most of the postwar era. Arkansas was 47th in rank in 1973, 1978, 1988, 1992, 1999, 2004 and 2007.

Arkansas Exceeds 80 Percent

Arkansas PCPI exceeded 80 percent of the U.S. for the first time in 2007 and 2008. Arkansas PCPI in 2007 was $31,646, or 80.3% of the U.S. ($39,430). Arkansas PCPI in 2008 was $32,397, or 80.6% of the U.S. ($40,208).

Factor: Tax Cut

Arkansas’ leap in income rank coincides with the biggest tax cut in state history, a two-thirds reduction in the grocery tax under freshman Gov. Mike Beebe. The tax was reduced from six to three cents (2007) and from three to two cents (2009).

Arkansas improved from 48th (2006) to 46th in per capita disposable (after-tax) income (2007-2008).

Tax cuts that influence capital investment decisions also have the potential to effect long-term income growth. These include state income and capital gains taxes. Wyoming (2005-), Nevada (1945-1983), and Alaska (1960-1996) do not have an income tax, and achieved top 10 rankings. Three of the top 10 states in 2008 do not levy an income tax (Wyoming, Alaska, New Hampshire).

Factor: Commodity Prices

Higher commodity prices were a factor in 2007 and the first half of 2008. These commodities include crude oil and natural gas. Arkansas improved from 34th (2005) to 33rd (2007-2008) in the dividends, interest and rent component of income, sometimes referred to as “investment income” or “property income.” This effect can also be observed in Arkansas Local Area Personal Income data (CAO5N NAICS) in counties with a significant commodity-based industry presence.

Factor: Agriculture

Farm proprietors’ income2 was also a factor in 2007. Arkansas ranked 9th nationally (2006) with $1.2 billion in farm proprietors’ income, and improved to 7th (2007) with $1.6 billion.

— Greg Kaza

1 Per capita personal income is total personal income divided by total midyear population. http://www.bea.gov/regional/spi/

2 BEA defines farm proprietors’ income as “income that is received by the sole proprietorships and the partnerships that operate farms. It excludes the income that is received by corporate farms.”