Gov. Hutchinson Proposes Income Tax Cuts and Revenue Offsets

Today Governor Hutchinson announced his much-awaited tax cut proposals. There are two main parts. First, income tax cuts for poorest Arkansans. Second, tax exemption for retired military benefits (and a reduction in the soda tax) paid for by an income tax increase on unemployment compensation and sales tax increases on manufactured housing and candy and soft drinks.The main tax cut is rate reductions for poorer Arkansans:

Bracket    Current Rate   Reduced Rate   Revenue Reduction
$0 - $4,299    0.90%    0.00%    $ 22,283,558 
$4,300 - $8,399    2.40%    2.00%    $ 7,508,244 
$8,400 - $12,599    3.40%    3.00%    $ 5,617,899 
$12,600 - $20,999    4.40%    3.40%    $ 10,898,058 


$4,290,537 of tax cuts would go toward bridging the lowered income brackets with the middle income brackets to prevent tax "cliffs," for a total tax cut of $50,517,216.

The other part of today's proposal, a $13 million tax exemption for military retirement benefits, would be paid for by 3 revenue offsets: ending a tax exclusion for unemployment tax benefits ($3.1 million); applying sales tax "to the full cost" of manufactured housing ($2.4 million) (perhaps eliminating the trade-in credit); and taxing candy and soft drinks at the ordinary sales tax rate instead of the special low rate for food ($19.3 million). The extra $6.3 million from raising the sales tax rates on candy and soft drinks would go to lowering the soda tax.

The governor's tax proposals are hard to argue with; at the same time however they do little to address the economic competitiveness concerns raised by the state's high top marginal income tax rates or by the complexity of the state's tax rules and their heavy burden on businesses. This proposal is seemingly going in the opposite direction of last month's Tax Foundation / ACRE tax reform policy recommendations.



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