Arkansas Republicans recently delivered the largest tax cut in state history. This income-tax relief is a huge win for households and small businesses, and Gov. Sarah Huckabee Sanders is committed to building on this accomplishment by putting the state income tax on the path to zero.
A phase-out of the income tax will allow all Arkansas income taxpayers to keep more of their earnings and would ensure the state is able to compete in the economy of tomorrow.
Thanks to the tax-cut packages that were delivered in 2021 and 2022, Arkansas's top income-tax bracket--the part of the income tax that is used to make decisions about investment--has been reduced from 5.5 percent to 4.9 percent. This was a giant step in the right direction, but lawmakers must remain proactive.
People and jobs continue to pour out of high-tax states and into states that impose low or no income taxes. Tax competition is heating up.
Right now, there are eight states--including Arkansas' neighbors Tennessee and Texas as well as nearby Florida--that do not impose individual income taxes of any kind. New Hampshire will soon become the ninth no-income-tax state. More than a dozen states are jockeying to be the tenth.
Gov. Tate Reeves and House Speaker Philip Gunn are committed to making Mississippi a no-income-tax state. Last year, they delivered legislation that will streamline the income tax to a flat 4 percent by 2026.
Senate Majority Leader Sharon Hewitt and Senate Revenue & Taxation Committee Chairman Bret Allain want to phase out Louisiana's income tax. They delivered legislation in 2021 that reduced every single of one Louisiana's income tax brackets, giving the state a much more competitive top rate of 4.2 percent.
House Speaker David Osborne and Senate President Robert Stivers delivered legislation last year that now has Kentucky's income tax on the path to zero. Kentucky's new tax law already reduced its flat income tax down from 5 percent to 4.5 percent, and is estimated to phase the tax out completely over the next decade.
Iowa will have a flat income tax of 3.9 percent by 2026, and Arizona now has a flat income tax of 2.5 percent.
Arkansas leaders are aware of the competition and refuse to sit back. "When I take office, we will work on responsibly phasing out the state income tax to reward work--not government dependency--and let you keep more of your hard-earned money in the failing Biden economy," Governor Sanders tweeted.
This goal is shared by many in the Legislature. "Arkansans are hungry for bold ideas like phasing out our state income tax," said Rep. David Ray. "We can and should work towards this goal, which will set Arkansas on a course for increased prosperity. This is the direction that pro-growth states are moving. If we wait and allow other states to lap us in the race for competitiveness, we'll regret having not acted and wonder what could have been."
One way to accomplish this goal is to use recurring surplus for an immediate rate cut and then to rely on revenue triggers--a responsible way for lawmakers to provide tax relief without the need to reduce current spending levels or raise other taxes, and without the risk of getting ahead of their ski tips--to facilitate additional income-tax rate cuts in future years.
The concept of revenue triggers is very simple. When revenue levels hit a certain point, a portion of the excess is returned to taxpayers in the form of permanent reductions to income-tax rates. This model ensures that rates are only reduced when excess revenues are available to "pay for" it.
Reducing and phasing out the state income tax would make Arkansas an even more attractive place to live and would generate new jobs and higher wages.
It would allow small businesses--which pay their taxes on the personal side of the code--to invest more in their employees and operations.
And most importantly, it would allow individual taxpayers and families to keep more of their hard-earned money.
Grover Norquist is the founder of Americans for Tax Reform. Ryan W. Norris is Arkansas state director for Americans For Prosperity.