Tax Cut For Low-To-Middle Income Arkansans Proposed

Mar 14, 2019

Senate President Pro Tem Jim Hendren, R-Gravette, introduces a bill to provide $100 million in cuts for low and middle-income Arkansans alongside lawmakers at the Capitol.
Credit Sarah Kellogg / KUAR News

State lawmakers are proposing a $100 million tax cut for Arkansans making less than $22,200 per year. 

The cut would come from a three-part bill proposed by Senate President Pro Tempore Jim Hendren on Thursday. Hendren said the bill, like last month's $97 million cut for the state's top earners, came about through recommendations by the Arkansas Tax Reform and Relief Legislative Task Force. 

"One of the things, having studied the tax policy for a year and a half... is Arkansas has a very regressive tax code," Hendren said. "We have high sales tax relative to other states, we have high income taxes relative to other states. Both of those factors weigh more heavily on low-income folks than they do high-income and medium-income families." 

The first part of the bill would lower the tax rates for low and middle-income Arkansans. Under the proposal, individuals making less than $$8,900 per year would pay no state taxes, as opposed to the current rate of 2 percent. People making between $8,900 and $13,399 would pay a 3 percent rate, and those making up to $22,199 would pay a rate of 3.4 percent. 

The bill would also provide a minimum of 5 percent of the federal Earned Income Tax Credit for working families. Hendren said that number could go up or down, depending on state revenue and economic conditions. The standard deduction would also be raised from $2,000 to $3,300 beginning in 2020. 

Rep. Nicole Clowney, D-Fayetteville, hailed the proposal as a step in the right direction to lessening the burden of lower income working families. 

"This was a true bipartisan effort. From the start, we all agreed that we wanted to do something that would help the lowest earning Arkansans. We've seen so much relief go to the highest earners in our state," Clowney said.

To make up for the expected $100 million loss in state revenue while maintaining a balanced state budget, the bill proposes a new "privilege tax" on cigarette and electronic cigarette products. Hendren says that's to make up for the disparity between current tobacco tax revenue and state Medicaid expenditures on smoking-related conditions. 

"People who choose not to smoke are paying a tremendous bill in taxes for those who do, from the bottom of the scale to the top of the scale. This is particularly unfair to low income families who must pay higher taxes because tobacco is not carrying a fair share of the burden they place on taxpayers," Hendren said.

Clowney agreed that Arkansas, which has the 34th-lowest cigarette prices in the nation, should be doing more to discourage tobacco use.

"I think there's not a person in this body who is not personally impacted by somebody with cancer, and I think that we've not done enough to curb cancers that we have the opportunity to help prevent," Clowney said. "Like [Sen. Hendren] also mentioned, we know that this is going to disproportionately impact lower income folks, and so there was no way that we were going to get behind that unless we knew that there were going to be some real substantive measures that would help those people."

Clowney said she and every other member of the House Democratic Caucus have signed on as a co-sponsor of the bill. 

No specific dollar amount is included in the bill for the new tobacco tax, though the proposal would levy a 20 percent special excise tax on proceeds from the sale of such products. The first $55 million in revenue from that excise tax would go to the state's General Revenue Fund, with remaining revenues going to a trust fund set up to pay for the proposed Earned Income Tax Credit.