Arkansas House Committee Rejects Tax Break For The Poor, Approves Two For The Rich

States across the country are pushing tax cuts as a way to stimulate economic growth, and an Arkansas House Committee joined them yesterday by approving an income tax cut and raising an exemption on investment taxes. While approving two tax proposals that will largely benefit the wealthy, however, the committee rejected a proposal that would give a tax break to low-income families.

The efforts are aimed at stimulating job and economic growth, according to Republican state legislators, the Associated Press reports:

The income tax proposal, which will cost the state about $57 million a year, is expected to be the largest piece of the tax cut package being negotiated. The proposal would lower the top income tax rate from 7 percent to 6.875 percent and increase the minimum income it applies to from $34,000 to $44,000. The reduction would take effect for the 2014 tax year. The lawmaker behind the idea said it would help Arkansas generate jobs by making its tax rate more competitive with surrounding states. […]

The panel also endorsed Carter’s proposal to increase the income tax exemption on capital gains of at least $5 million from 30 percent to 70 percent. It would also create a 70 percent exemption for any net capital gains relating to the sale of Arkansas property acquired after Jan. 1, 2014.

Even as it raises the minimum amount needed to qualify for taxation, the income tax proposal would grant more than half of its benefits to Arkansans who make more than $155,000 a year, according to the Institute on Taxation and Economic Policy. The capital gains exemption, which ITEP calls one of the two “most regressive state income tax loopholes,” would only benefit wealthy families. But cutting taxes to stimulate growth isn’t the best strategy: a report from the Center on Budget and Policy Priorities released this week found that states that implemented tax cuts in the 1990s saw slower economic growth afterward than states that did not.


At the same time, the committee rejected a proposed Earned Income Tax Credit that would have given breaks to low-income residents, just as the EITC does on federal taxation. Arkansas’ tax code is already among the most regressive in the country, according to ITEP. It’s poorest residents pay 11.9 percent of their income in taxes, the 10th highest percentage among the 50 states and Washington DC. The richest one percent of its residents pay just 6 percent of their income in taxes. Gov. Mike Beebe (D) has warned the legislature that his budget does not include room for costly tax cuts, which should prevent Arkansas’ House Republicans from making the tax code even more regressive.