Last month we showed how Arkansas’s 2015 tax cuts were leading to increased tax revenues.
It turns out that our friends over at the American Legislative Exchange Council (ALEC) have noticed the Natural State’s successes in this area.
According to Governor Asa Hutchinson, Arkansas ended fiscal year 2016 with a budget surplus of $177.4 million – a sizable $117.3 million higher than the previous fiscal year. Individual and corporate income tax revenues blew through expectations: individual income tax collections exceeded estimates by $82.1 million with refunds already factored in. In 2013, former Governor Mike Beebe signed into law a multi-year package that would reduce taxes by $10 million in fiscal year 2014, $85 million in 2015 and $140 million in 2016. Governor Hutchinson continued these efforts, increasing the 2015 tax cut to $100 million.
Or, as Gov. Asa Hutchinson said in July, “the sky has not fallen” when it comes to the relationship between tax revenue and tax cuts in Arkansas.
ALEC describes the recent tax cut measures undertaken in Arkansas:
Among the most significant changes was an across-the-board cut in the state’s personal income tax rate, and an increase in the standard individual and married deductions. Furthermore, the capital gains tax exemption increased from 30 percent to 50 percent of gains, with a full exemption for gains in excess of $10 million. A recent OECD study of tax policy effects across multiple countries found taxes on capital are particularly harmful to economic growth, with corporate taxes, personal income taxes and capital gains taxes being the most harmful of all.
Usually, left-wing critics of tax relief argue that it will starve the state and force cuts in basic government services. However, that’s not been the case in Arkansas — as last fiscal year’s surpluses show.
Another argument critics of tax cuts usually fall back on is that they disproportionately benefit the wealthy at the expense of the poor and middle class.
However, ALEC’s Elliot Young argues these Arkansas tax cuts have benefits that are being felt from the bottom to the top of the economic ladder.
More from ALEC:
Critics of Arkansas’s capital gains tax cuts insist that “scaling back taxes on capital gains income helps wealthy Arkansans almost exclusively.” However, wide-scale data does not support this claim. If windfall tax revenues, expanding employment and wage growth all while cutting taxes are not enough, a recent Gallup Poll found that around 50 percent of “lower-middle class” Americans are investing — and among those earning more than $70,000 per year that number climbs to 74 percent. Furthermore, among small business owners who received tax refunds this year, 75 percent said they intend to reinvest that money into their business for expansion initiatives, employee hiring or equipment acquisition. It follows then, that letting business owners keep more of their own money will help them reinvest even more and, in turn, grow economic opportunity and well-being.
If Arkansas wishes to remain economically competitive, lawmakers should focus on finding new and better ways to lower the government’s burden on entrepreneurs, and avoid slipping backwards into the very tax and spend policies that put the state in dire positions in years past. More growth means happier, healthier and wealthier people — and a government better equipped to effectively perform its core functions.
As Arkansas has shown in recent years, we can cut taxes without risking major cuts to basic government services. Hopefully, this will encourage Arkansas lawmakers to pursue more tax cuts in the near future.