“There is significant evidence that reductions in marginal state tax rates encourage state economic growth …Rates on productive behavior should be reduced.”
“Reduce the state’s income tax…repeal the state’s capital gains tax.” Arkansas Policy Foundation, Murphy Commission project, 1998
(July 2014) Arkansas state government’s $78.7 million general-revenue surplus in the fiscal year (2013-14) that ended June 301 illustrates it is possible to cut income tax rates without cutting state programs.
The Murphy Commission, a Policy Foundation project, spent three years reviewing Arkansas’ tax system before publishing two 1998 studies2 that concluded rates were a factor affecting economic development. The Murphy Commission recommended cutting state income tax and capital gains rates.3
The U.S. economy has been expanding since June 2009, and Arkansas state government recorded surpluses totaling more than $500 million in the previous three fiscal years (2010-11, 2011-12, and 2012-13).
Hutchinson Proposal
The top income tax rate (6.9%)4 could be reduced to at least 6.7%, with larger reductions in lower brackets if the surplus was applied to cutting rates.
Income tax rate reduction has emerged as an issue in the governor’s race. Republican nominee Asa Hutchinson has proposed cutting the state’s income-tax rate from 7% to 6% for individuals earning between $34,000 and $75,000, and from 6% to 5% on those earning between $20,400 and $34,000.” Hutchinson said he would act in his first year as governor.5
Surpluses are occurring because the economy is in the expansion phase of the business cycle.
1 “State rolls up surplus of $78 million for year,” Arkansas Democrat-Gazette, July 3, 2014
2 Taxes And Savings In Arkansas (Dr. S. Keith Berry) and Improving Productivity By Reducing Taxes (Dr. Ronald John Hy and Dr. R. Lawson Veasey). They are posted online at the Policy Foundation’s site (www.arkansaspolicyfoundation.org) at the Murphy Commission link.
3 The capital gains rate has been cut from 7.0 to 3.5%.
4 Effective in 2015.
5 Arkansas Democrat-Gazette, May 11, 2014
