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State Capitol Week in Review – December 4, 2021

LITTLE ROCK – The legislature is scheduled to begin on December 7 a special session to consider reductions in individual and corporate income taxes.

The governor and state revenue officials have proposed a measure that would lower income taxes by almost $500 million a year when all of its provisions have taken full effect.

There are enough legislative co-sponsors to make passage of the measure a mere formality.

The tax reductions will be in effect for only part of 2022, when it will save Arkansas taxpayers an estimated $135.25 million.

In 2023 the estimated tax savings are $307.4 million. In 2024 they will be $383.2 million and in 2025 they will be $459 million. By 2026, when all of the provisions have taken effect, the tax savings will be an estimated $497.9 million a year.

The proposal would lower the top rate for individual state income taxes, from 5.9 percent to 4.9 percent. The top rate for corporate income taxes would drop from 5.9 percent to 5.3 percent.

It would increase tax credits for people with incomes of less than $22,900, saving them almost $20 million a year.

People in the low income and middle income brackets would save about $133 million a year.

The legislature approved income tax cuts proposed by the governor in 2015, 2017 and 2019. In total, they lowered taxes for Arkansas families, in all income brackets, by about $250 million a year.

Even after reducing tax revenue, Arkansas ended last fiscal year with a surplus of almost a billion dollars.

When the state accumulates such a large surplus, it promotes two opposing schools of thought. In one camp, advocates argue that legislators should increase funding of vital social programs such as services for people with disabilities and pre-school for children in low-income families.

On the other side are elected officials who believe that large surpluses prove that taxes are too high. They say that essential services are adequately funded, and the surplus should be returned to taxpayers because government is not in the business of stockpiling money it doesn’t need.

Another issue that will arise during the special session is whether legislators will limit their action to items on the governor’s official call. Beyond the income tax cuts, he has listed several minor “housekeeping” measures that need to be approved and should not generate much controversy.

For example, a law enacted earlier this year limits rebates from pharmaceutical manufacturers that sell insulin. An unintended consequence was that it may raise costs of health insurance for teachers and state employees. The governor said he would ask that the legislature repeal the law.

Some legislators want to add a provision to Arkansas laws that outlaw abortions, to allow civil lawsuits against abortion clinics. If the governor does not include the item on his call for a special session, it would not be considered unless the legislature voted by an extraordinary majority of two-thirds to bring it up. Also, some legislators have said they would try to bring up tax cuts that go beyond those proposed by the governor.


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