Analysis: The Longer-Term Effects of AR's Lower Tax Rates

    Arkansans will owe the state fewer tax dollars this year, due to tax cuts that have just gone into effect.

    Danielle Smith

    The General Assembly met for some special sessions and implemented cuts, both to personal and corporate income taxes.

    Bruno Showers, senior policy analyst for Arkansas Advocates for Children and Families, said his group partnered with the nonpartisan Institute on Taxation and Economic Policy to analyze the tax cuts and found they'll mostly benefit people with higher incomes.

    He noted that the personal tax rate was cut from 5.5% to 4.9% - which is where the state will lose the most money.

    "And we just think that at this time, every day, our kids and families are facing rising prices," said Showers. "Rents are going up, the cost of food and utilities is going up. And we think that that revenue could be better used to address the needs of everyday Arkansans, rather than cutting taxes."

    Showers noted that the analysis also found the corporate tax cut - from 5.9% to 5.3% - will be passed on to shareholders who may not even live in Arkansas.

    He added that nearly 80% of the corporate income-tax cut will benefit the top 20% of earners once it's fully phased in.

    Showers acknowledged that cutting the state's top corporate income-tax rate may help increase economic activity somewhat. But he said even the most generous estimates show it would be a very small share of the state's overall economic output.

    "At some point before they cut taxes this previous year, and the year before, they hired some consultants to analyze the potential economic boost from cutting these personal income taxes," said Showers. "And it was something like less than one-tenth of 1% increase in economic output, over a 10 year window."

    Showers said the hope now is that the state won't have to trim public services or raise taxes elsewhere to make up for the revenue it is losing.

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