Ross Proposes Phase-in Of Income Tax Reform (UPDATE)

Democratic gubernatorial candidate Mike Ross proposed a major overhaul of the state’s personal income tax structure on Wednesday (Feb. 5) and said the plan would have to be phased in over time as allowed by the state’s finances.

The total price tag of the restructuring would cost an estimated $574.5 million, according to the Arkansas Department of Finance and Administration.

The crux of Ross’ plan would be to retroactively index Arkansas income tax brackets taking a 1997 state law and applying it to the 1971 realignment of the tax code. Act 328 of 1997 tied state income tax brackets to inflation on a forward-going basis.

The proposal also includes reductions of one-tenth of a percent to the personal income tax rates passed under Act 1459 of 2013.

When fully implemented, Ross’ plan would achieve the following:

• Wage earners making less than $9,000 would pay at a 0.9% tax rate;
• Those making $9,000 to $17,999 would pay at a 2.4% tax rate;
• For workers earning $18,000 to $26,999, they would pay at a 3.4% tax rate;
• $27,000 to $44,999 would pay a 4.4% tax rate;
• $45,000 to $75,099 would pay a 5.9% tax rate; and
• Those making $75,100 or more would pay at a 6.9% tax rate.

Currently, the state’s top income tax bracket of 7 percent starts at $34,000, meaning taxpayers who make more than $34,000 pay the 7 percent rate. Ross said his tax cut plan sets the state’s top tax bracket at $75,100 and lowers the tax rate for nearly all income earners under $75,100.

“I want to modernize our income tax code in a way that means lower, fairer taxes for working families and small businesses in Arkansas, and I want to do so in a fiscally responsible way that maintains our balanced budget and protects vital state services like education, Medicaid and public safety,” Ross said. “Just like Governor Beebe did with the sales tax on groceries, I will also gradually phase in my tax cut plan as the state can afford to do so.”
Ross said his tax cut plan, when fully implemented, would cut income taxes by as much as $465 for incomes at $30,000; $665 at $40,000; $880 at $50,000; and, $1,148 at $75,000 and up. He proposed mimicking Gov. Mike Beebe’s phase-out of the sales tax on groceries as his blueprint for restructuring the tax code.

Ross’ likely Republican opponent, Asa Hutchinson, has also proposed an income tax reform proposal.

Hutchinson’s plan would reduce the income tax rate from 7% to 6% for Arkansans earning between $34,000 to $75,000 a year, and from 6% to 5% for those earning between $20,400 to $33,999 annually. He estimated his tax cut plan would cost roughly $100 million.

The Ross campaign offered this document to outline its proposal.

UPDATE:  Hutchinson responded to Ross’ plan with the following statement:

“I’m glad longtime Democratic Congressman Mike Ross finally recognizes the need for tax relief in Arkansas. Unfortunately his plan is just not serious. It has no specifics or time-frame for action,” Hutchinson said.

“Three months ago, I laid out a serious plan to begin reductions of our income tax rates in Arkansas. I gave a specific timeline and how I will lead as Governor. This is a clear difference in leadership,” he added. “My plan is specific and on day one we will have legislation for middle income tax relief in Arkansas.”

Hutchinson also said, “While my plan focuses on competitive tax rates in Arkansas for job creation, the Ross plan is not a long-term solution for economic growth. Under Mike Ross, Arkansas will continue to have the highest income tax rate in the region. This is a fundamental difference in our vision for growing Arkansas’s economy and creating jobs.”

“Finally, Mike Ross needs to answer this question: What is his first priority? Is it the $40 million dollar tax relief that he promised to the manufacturers or the half a billion-dollar tax proposal made today?” said Hutchinson.