Tax cuts weighing down revenue growth

Recent tax cuts are weighing down the revenue growth that Arkansas needs to address our crumbing roads, our hurting schools, and to help the one in four kids growing up in poverty in our state. Two big reasons for the slow growth are the Middle Income and Capital Gains tax cuts passed during the last legislative session.

Since those cuts went into effect three months ago, we technically brought in $50 million more in net general revenue[i] than (the DFA forecast) expected. But, when you compare to how we did last year (and you should), revenues barely budged. The real increase for these first three months of the fiscal year (July, August, and September) compared to the same three months last year was only $14 million (or 1.1%). We need steady, strong revenue growth year over year. That can’t happen with round after round of tax cuts.

Individual income taxes are a big part of state revenues, and they have dropped 4.5 percent (or $32.3 million)in the three months since the July tax cuts were implemented. Increases in other areas like the sales tax (up 7 percent) were barely enough to offset that drop in revenue. In September alone, total revenues were down $4.7 million or -0.9 percent from last year.

The full force of the recent cuts to personal income taxes won’t be felt until fiscal year 2017, when the estimated cost to revenue increases from $22.9 million to $90.3 million.  It is worth noting that the average tax savings for the middle 20 percent of Arkansans (those making between $30,000 and $50,000) is only $40 a year after this tax cut. That hardly seems worth the resulting cuts to programs and services like libraries, juvenile justice, and the health department.


[i] Net general revenue represents the bottom line of funds available for distribution to state agencies and is calculated by taking certain off-the-top deductions from gross general revenue (like a portion of education adequacy funding and tax refunds).