The Arkansas General Assembly adjourned its 2nd Extraordinary Session Thursday morning. Since convening Tuesday, Dec. 7, legislators passed eight bills, including identical House and Senate versions (SB1) and (HB1001) of a tax cut measure that will reduce the top personal and corporate income tax rates, consolidate the low and middle-income tax tables and create a non-refundable low-income tax credit.
“Yesterday, I signed into law the most recent tax-cut bill that will lower state income taxes for all Arkansas taxpayers,” Governor Hutchinson said in an official statement. “I proposed the largest tax-cut bill in the history of Arkansas to give Arkansans around the state a much needed helping hand and to continue my promise of lowering taxes for everyone in the state.”
The new tax cut legislation is projected to amount to $500 million in annual tax relief for Arkansans by year 2025. The measure reduces the top individual tax rate from 5.9 percent to 4.9 percent in the next four years. The current top corporate rate is already set to drop to 5.9 percent on January 1, per the existing 2019 law change. Under the bill passed this week, the top corporate rate will drop to 5.3 percent by January 2025. These reductions only happen if no funds are transferred out of the Catastrophic Reserve Fund during certain periods.
“In 2014 the year I was elected, according to the Federation of Tax Administrators, Arkansas collected $8.9 billion in tax revenues. This put the state per capita tax revenues at 16th highest in the United States,” Hutchinson said. “When I ran for governor, I promised to cut our income taxes by $100 million. With the support of the General Assembly, we not only kept that promise, but over the course of the last seven years, we have reduced our income taxes by over $250 million each year.
“Almost two years ago our top individual income tax rate was reduced. The top rate was cut down to 6.6 percent and then down to 5.9 percent earlier this year. Next month, you will see the rate drop to 5.5 percent and then to 5.3 percent the next year. Now after passing the nearly $500 million in tax reductions, we will be getting that number down to 4.9 percent by 2025.
Why is this important? Because it helps every Arkansan, and it also is an economic benefit for our state,” Hutchinson explained.
These bills reduce the current three individual tax tables to two by combining the lower and middle-income tables, effective January 1. The new table will apply to those with net taxable income up to $84,500 per year. The high-income table will apply to those with taxable incomes above $84,500. The top rate would fall from 5.9 percent to 5.5 percent on January 1; then lower each year to 4.9 percent in January of 2025. Again, this is if no funds are transferred from the Catastrophic Reserve Fund. The Governor signed this measure into law yesterday.
“Through conversations with several companies looking to create jobs and move operations to this state, it is clear to me that one of the main factors these companies take into consideration when deciding where to locate is a state’s income tax burden,” said Hutchinson. “This change will increase our competitiveness as a state in attracting industry and talent to Arkansas.
“The bill also provides relief to low-income taxpayers by giving a $60 tax credit. This will provide a reduction in the state income taxes owed for about 28 percent of all Arkansas taxpayers. With the $60 credit, the tax cut also completely eliminates taxes owed for over 100,000 low-income Arkansans,” he added.
Both chambers also approved measures to support a pending economic development project in Mississippi County. SB10 and HB1007 by Sen. Dave Wallace and Rep. Joe Jett will create a new way for a steel manufacturing project to qualify for a tax credit for purchase of waste reduction, reuse or recycling equipment. The measure is aimed at getting U.S. Steel to commit to a proposed $3 billion expansion at its current location in Mississippi County. Two other states are competing for the project. The credit will cost the state an estimated $11 million a year for 14 years and $8.8 million a year if the state buys back the credits at a 20 percent discount. The House and Senate also passed identical measures to allow the state’s chief fiscal officer to transfer up to $50 million from the long-term reserve fund to the general revenue allotment reserve fund for economic development incentives.
Legislators also passed Act 6 giving spending authority to the Arkansas Department of Finance and Administration for an additional $3 billion, to continue disbursing federal American Rescue Plan Act funds. (Agencies would still have to receive legislative approval from the Arkansas Legislative Council for individual funding requests.)
Acts 9 & 13 (HB1005 and SB7 by Rep. John Payton and Sen. Dan Sullivan) repeal a statute put on the books last session. The initial measure prohibited most manufacturer discounts on insulin products, but wound up having unintended consequences. An independent consultant review found a repeal of the measure could result in significant annual savings for the state.
“As Governor, it is important for me to balance the needs of our state with responsible tax policy. We have taken a responsible approach to lessening the state’s income tax burden, while also ensuring that the state is still able to meet its obligations,” Hutchinson remarked.
“For the average Arkansas family, this tax break could mean groceries on the table, a new set of tires, or a less stressful Christmas. It allows hard-working Arkansans to keep more of their hard-earned money and also makes Arkansas more competitive with our surrounding states, spurring job creation and economic growth for years to come.
“I applaud the work of the General Assembly in passing this tax cut bill. I hope you will contact your state representative or senator and thank them for supporting this legislation.”
There was an unsuccessful effort by a handful of members in both the House and Senate to expand the session up to an additional 15 days to take up a number of outside issues, including a bill to enhance abortion restrictions in the state similar to the recently adopted bill in Texas. The Legislature next convenes February 14 for the fiscal session.