AG Rutledge proposes eliminating state income tax by 2030 through constitutional amendment

Attorney General Leslie Rutledge, Republican candidate for Arkansas governor, announced Thursday (July 22) she would lead a constitutional amendment campaign to abolish the state income tax for individuals.

Calling it the “first phase of her economic initiative,” she said, “the Rutledge Plan is a grassroots effort to put a constitutional amendment on the ballot to permanently eliminate Arkansas’ personal income tax.”

“For too long Arkansas politicians have talked about doing away with the state income tax, but it’s time to stop talking and start doing. I’m running for Governor to ‘Make Arkansas First,’ in job creation and economic development. I don’t just want to compete – I want to beat our neighboring states of Tennessee, Texas, and Florida,” she said in announcing the initiative.

Rutledge said she wants the proposal on the November 2022 general election ballot, which would make it effective in 2023. A proposed constitutional amendment would need more than 89,000 voter signatures to qualify for the ballot.

She said a detailed proposal outlining the amendment and a ballot committee would be coming at a later date, but Rutledge tells Talk Business & Politics the plan is to end individual income taxes in Arkansas by 2030.

“The plan will include an elimination of the state income tax by the year 2030,” Rutledge said. “Over the last several legislative cycles, we’ve been chipping away at the state income tax, the legislators and the governor. However, we can’t wait 30 years to eliminate the state income tax.”

The top individual income tax rate in Arkansas is 5.9%. Last year, it brought in roughly 50.6% of current state revenues. In the most recently ended fiscal year, net individual income taxes accounted for $3.467 billion of the state’s $6.845 billion budget. With a $945.7 million surplus, Gov. Asa Hutchinson and state lawmakers are working a plan to reduce the top rate to 5.7% in the current fiscal year and 5.5% in the next fiscal year. Rutledge wants to shrink it to zero percent in eight years.

She said an incremental reduction of the individual income tax is working against Arkansas’ ability to be competitive for economic projects and increasing population migration to Arkansas from other states, a notion disputed by economists.

“There will be a timeline, but the end goal is to eliminate it, to give that certainty by 2030,” she said.

More than 95% of state revenue is traditionally allocated to education, prisons and public safety, and health and human services. With the proposed acceleration of the elimination of income taxes, Rutledge acknowledged that cuts to state spending would have to occur, but she didn’t provide specific areas of reduction in state expenses. She said details of budget cuts would be forthcoming.

“We’ve got to make the tough decisions in government of reducing the budget,” Rutledge said in reference to the supermajority strength of Republicans holding statewide and legislative offices. “We already have ideas of areas that need to be cut, efficiencies that need to be made. It’s not enough to simply say that we have efficiencies… I’m not saying it’s going to be easy, but it’s time – particularly for conservative Republicans – to stop talking about eliminating the personal income tax and just do it. That’s going to mean making tough decisions.”

While she promised specifics would be forthcoming, she said eliminating state government jobs and programs and pursuing more fraud, waste and abuse cases would be a component. Rutledge, who said she has reduced her AG office spending by 10% during two terms, emphasized she would not support any tax increases to offset the revenue loss from eliminating income taxes.

Rutledge is seeking the Republican nomination for Arkansas governor. Her primary opponent, Sarah Huckabee Sanders, holds a huge fundraising advantage over Rutledge. Sanders has also advocated the elimination of the individual income tax but has not presented a detailed plan for how that reduction would work.

“As governor, Sarah will lower and begin to phase out the state income tax to reward hard-working Arkansans, and unleash bold reforms to make our state one of the best places in our country to start and grow a business, creating thousands of new high paying jobs for our people,” said Chris Caldwell, campaign manager.