The state’s wealthiest — and disproportionately white — residents have largely avoided the economic and health effects of COVID-19. Meanwhile, Arkansans with the lowest incomes, who are more likely to be Black and Latino, have endured the greatest harm. This lopsided impact reflects harsh, longstanding inequities — often stemming from structural racism — in education, employment, housing, and health care that the current crisis is making worse.
Arkansas can reduce these racial and economic inequities and speed up the recovery by ensuring the wealthy pay their fair share through taxes on capital gains, as detailed in a national report released today by the Center on Budget and Policy Priorities. The much-needed revenues from these tax policies can preserve funding for crucial priorities like education, health care, or cash assistance for the families who are struggling to make ends meet.
By improving the ways Arkansas taxes wealth, lawmakers can help create a recovery and economy that works for everyone. This is essential not only for our recovery from the pandemic-related recession, but to build a state where our children and grandchildren can thrive, regardless of race or income.
In particular, Arkansas lawmakers can enact the following wealth taxes:
- Mansion taxes: Tax high-value homes or their sale or purchase. The economic crisis largely spared the high-value housing market: Sales of luxury homes increased 42 percent over the same time last year, while sales of affordable homes declined more than 4 percent over the same period.
- Capital gains taxes: Tax the income an investor gets when a financial asset is sold for profit. Arkansas currently excludes half of all capital gains income from taxes and excludes all capital gains income over $10,000,000 from income taxes entirely. The stock market’s high performance has preserved these profits for many wealthy families.
- Estate or inheritance taxes: Tax the wealth passed on from generation to generation or raise the rates or lower the threshold at which wealth taxes apply. Inherited income is taxed at less than one-quarter the rate of income from work and savings, and the federal government taxes only the inheritances of the super-rich.
Under the state’s current tax system, Arkansans with low and moderate incomes pay proportionally more in taxes. And in the COVID-19 context, these same individuals are facing a slow and costly economic recovery. Nationally, high-wage earners (over $60,000 per year) have seen their employment levels return to slightly above pre-pandemic levels. For low-wage earners (below $27,000 per year), a return is much farther off: employment rates were 19 percent lower in September 2020 than in January 2020.
Tax increases at the top are also better for state economies during a recession than spending cuts. Progressive taxes allow for much-needed public investments that keep money flowing through states’ economies by staving off layoffs and enabling states to maintain purchasing. Unlike individuals with low incomes, wealthy and high-income individuals generally maintain their spending levels regardless of a tax increase.
“Every state has economic, wealth, and racial inequities, and each one – including Arkansas – can improve the way it taxes its wealthiest residents,” said Samantha Waxman, policy analyst at the Center on Budget and Policy Priorities and lead author of the report. “This is the right thing to do for Arkansans and it’s also the sound thing to do to stoke a quicker and more widespread economic recovery.”