An Arkansas House panel approved a change to the state’s income tax brackets, a move that could deplete state revenues by $57 million a year.
HB 1585 by Rep. Charlie Collins (R-Fayetteville) would make changes to the personal income tax rates by elevating the top tax rate from $34,000 to $44,000 and then lowering the top tax bracket from 7% to 6.875%.
HB 1585 also makes technical corrections to the lower income tax tables.
“Eliminating the income tax is not realistic for us in the near term,” said Collins, who pointed out that some surrounding states have no income tax and the highest percentage of a neighboring state is 6%.
“We’re putting ourselves in a position to try to restore some of that balance in the code,” he said. “It begins to communicate to job creators… that Arkansas is starting to move in a different direction.”
Arkansas adopted the personal income tax in 1929 with a 5% top rate for those making $25,000 or more. In 1971, a major reform to the tax rates was instituted included building the 7% top tax rate for wage earners.
Collins said that the revenue impact to the state under his bill would be roughly $57.2 million. He said the money to fund the tax cut would come from growth revenue in FY 2014 and FY 2015, when a combined $403 million in expanded tax collections are forecast.
Collins also stressed that if elements of Medicaid and health care reform are passed in this session, he could foresee a scenario where the Governor’s balanced budget recommendation of $1.027 billion for Medicaid could be reduced to $850 million – a savings of another $178 million.
“If revenues are greater, if Arkansas’ model of health care is developed, it’s possible that fiscal ’15 recommendations from the Governor could be less,” Collins said.
Several groups opposed the bill, including Arkansas Advocates for Children and Families and the Arkansas Public Policy Council. Both groups argued that the tax cut would be more beneficial for high-wage earners and that proposals to help low-wage earners would be a better use of state resources.
Earlier in the committee, a bill supported by AACF, HB 1240, which would allow for an earned income tax credit for lower wage workers, was tabled. It would cost the state roughly $40 million annually.
Later today, House Speaker Davy Carter (R-Cabot) is planning to run his capital gains tax cut measure, HB 1966.