State can further reduce tax burden
Moving foward
Arkansas recently lowered income-tax rates once again. However, several states have enacted a flat individual income-tax system, including Georgia, Iowa and Mississippi. Oklahoma is seriously considering doing the same thing.
The Natural State has been making strides toward reducing taxpayers’ burdens by passing the largest taxreform package in state history during the last special session. Total tax savings could amount to approximately $500 million between now and Jan. 1, 2024.
The tax cut is a significant step in the right direction, but more can and must be done to ensure that Arkansas remains competitive. It is imperative that Arkansans recognize and respond to improvements in other states’ tax codes because firms, households, and individuals stand to benefit from these changes. Academic research, such as a paper by Roger Cohen and co-authors in the journal Business Economics in 2014, demonstrates that states with lower income-tax rates attract higher numbers of migrants.
The Tax Foundation just released a treasure trove of state revenue breakdowns during fiscal year 2019 in their publication Facts & Figures. Arkansas ranks 38th out of the 50 states in terms of its per-capita state and local tax collections. Each resident of the Natural State paid an average of $4,282 in taxes in 2019, while the average per-capita state tax burden of Arkansas’ neighboring states is $4,147. This means that residents of Arkansas’ border states pay around $135 less per capita in state and local taxes.
Tennessee was substantially lower at $3,423 per person in total taxes, the lowest in the nation. Arkansas’ top tax rate will soon be down to 4.9 percent. That’s still much higher than Tennessee (which has no personal income tax), but it will also be slightly above most of our other neighbors that do have an income tax.
Arkansas will still have two sets of individual income-tax brackets, even under last session’s tax-reform package. Legislators should consider further consolidating the remaining income-tax brackets to a single tax table, but even this wouldn’t go as far as the reforms enacted by Georgia, Iowa and Mississippi. Each of these three states are moving to not just one table of rates, but a single income-tax rate. Dr. Jeremy Horpedahl, an associate professor of economics at UCA and ACRE Scholar, explained that Arkansas taxpayers benefit from tax-bracket consolidations on “Capitol View” last October.
Arkansas can and should continue to match the changes made by other states in to remain competitive with these states which vie every day for residents and businesses.
Joseph Johns is a policy analyst at the Arkansas Center for Research in Economics at the University of Central Arkansas. Jeremy Horpedahl is an associate professor of economics at UCA and a research scholar at ACRE. The views expressed here are their own, and not an official position of UCA.