Legislators Move on Proposals from ACRE’s “Road Map to Tax Reform”

By Caleb Taylor

Arkansas Tax Reform & Relief Legislative Task Force members voted August 22nd to approve a report that recommends reducing the top personal income tax rate to 6.5 percent, consolidate its three rate schedules, and more.

The top personal income tax rate is currently 6.9 percent. The plan would cut taxes for individuals by about $260 million with $100 million of that total going to middle income earners.

The rate and table reductions are similar to the reform suggestions outlined by ACRE Scholar Jeremy Horpedahl and Tax Foundation experts in their book, ‘Arkansas: The Road Map to Tax Reform.’ In the book they outlined two plans that would consolidate the income tax tables from three to one, reduce the top tax rate to either 5 or 6 percent, and lower other tax rates as well (see page 3 in the Executive Summary).

Task Force Co-Chair Senator Jim Hendren said of the plan:

Some say it’s a wish list. I don’t really see it as a wish list. I view it as a long range plan and we’ve got to figure out how we’re going to implement that in a methodical way. 

Nicole Kaeding, Director of Special Projects at the Tax Foundation, told legislators the plan if implemented in full would improve Arkansas’s overall business tax climate from the 39th to 36th and state in the country improve its corporate tax rank from 39th to 26th. Some of the changes to the corporate income tax included in the report are a repeal of a tax exemption on capital gains over $10 million and a reduction of the top marginal rate to 5.9 percent.

Kaeding also discussed how Arkansas could implement the plan’s tax cuts while still maintaining revenue for government services. She discussed “tax triggers” as a possibility to gradually implement the tax cuts based on population growth, annual tax collections and inflation. You can read her full presentation here.

Other Approved Recommendations

Although income tax cuts got most of the headlines in coverage of the meetings, that’s only one part of the comprehensive plan. There were 22 recommendations in the final report approved by the Task Force on August 22nd.

Most of the proposals in the report are similar to  recommendations by “Road Map” authors.

Some of these recommendations are:

  • increasing the carry-forward period on net operating losses
  • reducing the corporate income tax rate
  • repeal of the “throwback rule”
  • inventory tax reform
  • clarifying that remote sellers are required to collect and remit sales taxes

What’s Next?

The task force’s next meeting will take place on September 26th and 27th.  For further information, you can read Learning from Other States’ Successes and Failures in Tax Reform by Horpedahl and Kaeding. Their op-ed on the same topic, “Reform Taxes Now,” in the Arkansas Democrat-Gazette on May 21st can be read here. More of ACRE’s research on taxation can be found here.