The Arkansas House and Senate both passed measures Wednesday (Dec. 8) to reduce Arkansas’ top income tax rate from 5.9% to 5.5% next year and to 4.9% in the next four years if certain economic conditions are met.
State lawmakers are meeting in a special session called by Gov. Asa Hutchinson to reduce the state’s top tax rate and to handle several other minor issues.
The legislation would also reduce the corporate income tax rate to 5.3% over the same time period; combine low- and middle-income tax tables; provide for a $60 non-refundable tax credit from those individuals with an income of less than $24,700; index the standard deduction to the Consumer Price Index; and change a long-term reserve fund to a “catastrophic” reserve fund.
Currently, that fund has roughly $1.2 billion in its balance. With a nearly $1 billion budget surplus, the tax cuts for the current fiscal year are expected to tap about $133 million. By the final year of reduction under the plan, it will reduce tax revenues by approximately $431 million.
The House tax cut bill passed on a 82-16 vote, while the Senate version passed 30-4.
“It’s going to simplify our tax code, which is going to benefit mostly lower and middle-income earners that have been left out of previous tax cuts,” said Sen. Jonathan Dismang, R-Beebe, one of the chief architects of the plan.
Democrats largely opposed the tax cut package saying the money could be better spent investing in early childhood education, developmentally disabled programs, rural infrastructure, free two-year college tuition, and more targeted tax relief for low-income Arkansans.
“This is about what actually equates to quality of life in Arkansas. It’s been said this tax plan gives every working Arkansan a break. But how much return do we actually get for what’s given?,” said House Minority Leader Tippi McCullough, D-Little Rock. “We propose to spend funds in ways that will enrich our state. We do not wait and hope, we support things that will make a true difference in a family’s life.”
Later in the day, the House Revenue and Tax committee passed the Senate’s version, and the Senate Revenue and Tax panel cleared the House version. Those moves set up a Thursday morning vote in both chambers that could bring the special session to a close.
In other business, legislators passed bills that corrected errors in the appointments to a tax appeal commission, fixed a loophole in a new LLC law, and allowed for security personnel for each chamber.
They also approved incentives for recycling tax credits and a budget bill that allows for the transfer of $50 million from a reserve fund to support a potential $3 billion economic development project for Northeast Arkansas.