We all know it is the people of Arkansas who drive our economy. Our contributions, our aspirations, our skills, our work (paid and unpaid), and our spending move the economy forward. Businesses rely on us. As such, people’s prosperity and well-being should come first. But unfortunately, when it comes to our state’s tax system, everyday Arkansans aren’t the priority.
Each year the Institute on Taxation and Economic Policy (ITEP) releases the 50-state report Who Pays? that looks at the structure of each state’s tax system and analyzes what percentage of people’s earnings goes towards taxes at different income levels. In Arkansas, things are upside down.
This year’s report finds that the 20% of taxpayers with the lowest incomes have a tax rate 126% higher than the taxpayers in the top 1%. You read that right: The lowest-income Arkansans have a tax rate more than double that of the wealthiest people in the state. If you feel like Screaming Face Emoji when you read that, I understand. You might also be wondering “how is that even possible?”
Source: ITEP Who Pays? 2024
For one, Arkansas relies too much on sales taxes, which Arkansans pay when we buy gas, groceries, household essentials, and more. Sales taxes are a big chunk of the taxes we pay, and the lower your income, the bigger chunk they take out.
Adding to disparity, income taxes in Arkansas continue to be cut, and those cuts have a (major) outsized benefit for people with the highest incomes. For instance, for the most recent tax cut passed by the Arkansas General Assembly in September, 70% of the benefit went to the top 20% of earners.
You can see how the percentage of people’s income that goes towards different types of taxes varies so widely in the charts below.
Source: ITEP Who Pays? 2024
In addition to relying too much on sales tax and continued rounds of income tax cuts, there are other ways Arkansas makes our tax system lopsided. There are a lot of ways that corporations can game the tax system. For instance, a law that passed last year prevents some corporate income from being taxed at all.
But there is good news! We can fix our upside-down tax system by putting everyday Arkansans first– helping families, building our communities, and strengthening our economy.
- The first big thing we can do – stop cutting income taxes and start investing in everyday Arkansans. Things like access to early childhood education, quality health care, and great schools are investments the state government can make to help ensure Arkansans have the resources they need to fully participate in our economy and take part in our communities.
- Next, the state could pass new tax credits, like the Child Tax Credit and the Earned Income Tax Credit, that benefit families and allow them to put money right back in their communities.
- Finally, the state General Assembly could reverse policies, like corporate tax loopholes, that have made our tax system mostly benefit the wealthiest and corporations.
Our tax system may not be working for the people of our state right now, but it can with changes to current laws. When everyday Arkansans thrive, our economy will thrive.