Expiration of ‘Bush-era’ tax cuts will hurt Arkansas, Oklahoma families

The evidence appears overwhelming that expiration of the “Bush-era” tax cuts would increase the tax bill for most middle-income families in Arkansas and Oklahoma.

The tax cuts were part of a broad bill (Jobs and Growth Tax Relief Reconciliation Act of 2003) reducing rates for a wide range of taxes, including individual income, capital gains, dividends and estate taxes. To gain approval, Bush and Republicans in Congress agreed to a provision allowing the cuts to expire at the end of 2010.

With the cuts set to expire, several factors have come together to create an interesting political dynamic. First, the nation may or may not be emerging from the deepest recession since the Great Depression. There is some thinking that now is not the time to push higher tax rates on American families and businesses. That dynamic is mixed with the approaching November mid-term election that may force Congressional leadership, seemingly willing to let the cuts expire, to consider the political fallout of a return to higher tax rates.

The Tax Foundation, a Washington, D.C.-based tax research thinktank, recently issued a report on how the tax cuts have reduced taxes in all 50 states. The report breaks  down the tax impact to all Congressional districts.

In Arkansas, the average tax savings for families under the Bush-era tax cuts is $1,418. The number rises to $1,443 in Oklahoma. Nationally, the typical middle-income family (median income of $63,366) would see its federal income tax burden increase by $1,540 if the Bush-era tax cuts expire, according to the Tax Foundation report.

Closer to home, the tax savings for the average middle-income family in Arkansas’ 3rd Congressional District is $1,550, and is $1,273 in Oklahoma’s 2nd Congressional District.

Rogers Mayor Steve Womack, the GOP candidate in the 3rd District race, supports extension of the tax cuts.

“Expiration of the cuts amounts to a huge tax increase which will prove counter-productive to the creation of jobs which this country so desperately needs,” Womack noted. (The City Wire has also sought comment from Democratic candidate David Whitaker. We will update this story when his comment is received.)

If the tax cuts expire, the 2011 tax bill for the average middle-income family in Arkansas will reach $3,408. If the cuts are extended, the bill will average $1,858.

Oklahomans will see their 2011 tax bill for the average middle-income family in Arkansas will reach $2,194 if the tax cuts are not extended. If the cuts are extended, the bill will average $921.

“The looming expiration of the Bush tax cuts will impact non-rich people in Arkansas and Oklahoma in a very real way by significantly increasing the federal income tax of the average middle income family,” noted John Taylor, senior vice president of John Taylor Financial-Sterne Agee and a member of the board of directors at Fort Smith-based Benefit Bank. “Tax cuts do not only help rich people as many politicians would have you to believe.”

Taylor’s view is supported by Dr. Michael Pakko, chief economist and state economic forecaster at the Institute for Economic Advancement at the University of Arkansas at Little Rock.

“As a state with a relatively low median income, Arkansas has many families that benefited from higher exemptions, the reduction of the lowest tax rate, and larger tax-offsets like the increase in the child tax credit. As a result, a complete expiration of these modifications to the tax code would result in large percentage increases in the tax burdens of middle-income Arkansans,” Pakko noted in his Arkansas Economist blog.

Pakko’s research shows that 20,267 Arkansas families and 32,139 Oklahoma families could see their household tax bill increase if the cuts are not extended.

The Tax Foundation report also provides this note on other potential impacts on family tax obligations: “For example, the more children a family has, the more its taxes will increase because the child tax credit will drop from $1,000 per dependent child to $500. Married families will be affected differently than single families due to the so-called marriage penalty provisions that are scheduled to return if the tax cuts are not extended.”

Link here for more information from the Tax Foundation.