Bills reducing both the individual and corporate income tax rates are heading to Gov. Sarah Huckabee Sanders’ desk.
Tuesday was the second day of a special session convened for the sole purpose of cutting state tax rates. The session was declared by gubernatorial proclamation last week. The bills contain matching statewide tax reductions and passed both chambers easily.
“There were better odds that the sun won't rise today than this bill will fail on the floor this morning,” Sen. Greg Leding, D-Fayetteville, said from the Senate floor.
Debates in both chambers were philosophical disagreements about the size and role of government spending. In his speech, Leding echoed Democratic sentiment that, instead of cutting taxes, the state should spend money on “ignored” public services.
“This money could do a lot more to help people then handing them back a few dollars and telling them good luck,” Leding said.
If signed by the governor, most working Arkansans will see modest percentage-point declines in their income tax. Households making $26,400 to $94,700 will pay 3.7% in income tax, retroactive to January. This is a slight decrease from last year, when the rate was 3.9%. People with higher incomes will pay 3.7% on every $4,701 they make above the threshold.
Rep. Ashley Hudson, D-Little Rock, was a no vote, saying with these tax cuts “the richer you are, the more you get.”
She gave a speech listing alternative priorities like child hunger, poverty and maternal mortality, explaining how the lost revenue from the cuts could instead help each problem.
The bills also lower the tax on most corporations to 4.1%.
Hudson pointed to data from the Institute on Taxation and Public Policy to say that about 95% of corporations benefitting from the cuts are based outside of Arkansas.
Hudson said, if Arkansas joined every other state in extending postpartum Medicaid coverage to a year after giving birth, it would cost $2 million a year.
“For reference, we could take this step to solving the infant and maternal death crisis thirteen times over just with the corporate tax revenue in this bill.”
Rep. David Ray, R-Maumelle, said Democrats who support spending increases instead of cuts will “never be satisfied.”
“The truth is, we've spent money on tons of key priorities,” he said, listing recent expenditures for maternal health, education and infrastructure.
“Does that mean we have solved every problem? No, of course not. Every state in America has problems.”
He says the cuts make Arkansas competitive with other states with higher tax rates.
“The idea that more spending is going to solve our problems is ridiculous,” he said.
Tax cut detractors say the decreases are too small to help struggling families. Hudson said most people would save about $50 a year or “pennies a day.”
But supporters say they add up to thousands of dollars over a decade of declining tax rates from the state. In the House, Rep. Les Eaves, R-Searcy, said billions have been returned to the taxpayer over the years, while Ray estimated savings between $2,000 to $5,000 per person.
The state has made a point to cut taxes with surplus money for over a decade.
In 2015, then-Gov. Asa Hutchinson inherited a state with a 6.9% tax rate on the highest earners. He pushed several cuts in his tenure, including a 2019 cut lowering the top rate to 5.9%, and another cut in 2021. When Hutchinson left the job, the tax rate for top earners was 4.9% and the surplus for the state was over $1.6 billion.
Gov. Sanders has continued the tax cut trend. She ran on eliminating the state income tax, making yearly incremental steps every session since. Now, the state will have one of the lowest income tax rates in its history.
Sen. Matt McKee, R-Pearcy, said he prefers giving money to taxpayers to spend how they see fit rather than spending more on services.
“I don't think the people of my district elected me to go after my dreams,” he said. “The question to me is, who best serves the people of Arkansas? Is it the churches? Is it the communities? Is it the neighbors? Or is it the state?“
Out of the 135 voting members between the House and Senate, there were 23 no votes. Sanders plans to sign the cuts into law Wednesday afternoon.
