Consultant: Arkansas tax cuts may shrink population, economy

LITTLE ROCK—Arkansas’ economy and population will shrink if state officials use spending reductions to finance an income tax cut, according to a consultant for the state’s tax-overhaul task force.

Regional Economic Models Inc. Senior Economist Peter Evangelakis presented on Monday assessments of the potential fiscal and economic impacts of three proposals to cut individual income taxes and several other tax-overhaul plans, The Arkansas Democrat-Gazette reported .

One plan proposed by Republican Gov. Asa Hutchinson calls for decreasing the state’s top individual income tax rate from 6.9 percent to 6 percent.

He said $180 million in budget cuts and economic growth would finance the cut.

The state would see an annual population decrease of 118 from 2019 to 2023 if $180 million in spending cuts are enacted, Evangelakis said. That would largely be driven by lower employment opportunities and a drop in in-state migration.

Total employment would also drop by about 1,450 annually during that five-year period, the assessment found.

However, if the state doesn’t cut spending to finance the tax cut, the governor’s plan would spur an average annual increase in state population of about 2,400, Evangelakis said. That would be spurred by higher after-tax compensation rates and employment opportunities increase in-state migration.

The state’s total employment would drive an average of $1,600 a year during the time period, the assessment said.

Jeremy Horpedahl, an assistant professor of economics at the University of Central Arkansas, said the consultant’s report illustrates that the proposed tax cuts will help spur some economic activity and employment, but won’t be able to pay for themselves. Hutchinson’s proposal “can be planned for,” Horpedahl said.