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The Last Word

State Tax Plan: Simple, Fair, Competitive

By Arkansas State Senator Jonathan Dismang

While it appears we have finally (and thankfully) concluded one of the longest sessions in recent history, we still have unfinished business.

After extending the regular session to wait for the pending redistricting census data, the legislature completed the congressional maps in a session wrap-up that ultimately had very little to do with maps. The close morphed into a difficult discussion on employee vs. employer rights and the differences between government mandates and employer requirements.

Amid the noise of the continuing debate related to Covid-19 policies and other hot button social issues, we have quietly set the stage to make responsible strides in reforming our state’s income tax structure.

The tax plan’s foundations are simplification, fairness and competitiveness.

As a quick overview, the proposed plan will combine the low- and middle-income tax tables, lower the top tax rate to 5.5% with a plan to responsibly reach 4.9%, and ensure the funding of our long-term reserve fund to 20% of the prior year’s general revenue expenditures.

Currently, Arkansas has the most complicated income tax system in the country. Combining the tables will help eliminate some of our tax code’s complexity, and it will also result in significant tax cuts for middle income earners who have been left out of past reductions. With a significant focus on working families, the plan strikes a fair balance by providing tax cuts to working Arkansans and job creators.

When considering the mix of sales, property and income taxes, it is clear we are falling farther behind our neighboring states, in terms of competitiveness. With an immediate commitment to drop the top rate from 5.9% to 5.5% and to lower the top rate to reach 4.9% over the next three years, we are closing that gap.  Another benefit of combining the tables is that every income earner making above $39,000 will benefit from all top rate reductions.

No state wants to repeat Kansas’s tax cut missteps. Making certain that our long-term reserve account is adequately funded is key. Doing so ensures that the state’s essential obligations are met in the event of an economic downturn or significant decrease in revenues. This provides confidence that our state is financially stable and responsible. During the past session, Senate leadership made it a priority to plan for the future by pushing all possible surplus balances to the long-term reserve account.

The immediate income tax cut, not including the future reductions to 4.9%, will total nearly a quarter of a billion dollars. With last session’s work to fully fund the long-term reserve account, its balance now exceeds one billion dollars. We are prepared, we are planning and we are working. I could not be prouder of our state’s financial position and our legislative leadership’s commitment to planning for a better tomorrow.

Many at the Capitol are focused on long-term, tangible improvements for our state. Hopefully, the progress doesn’t continue to get lost in the noise. If you get a chance, tell President Pro Tempore Hickey and Speaker Sheppard thanks for their leadership and thanks for governing.

Sen. Jonathan Dismang (R-Searcy) serves as the co-chair of the Joint Budget Committee. Sen. Dismang is owner and president of Dismang Consulting Services, LLC, where he provides financial oversight services with an emphasis in real estate.

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