A recent report by the Institute on Taxation and Economic Policy, a D.C.-based think tank, says Arkansas is among the ten most regressive states in the country when it comes to taxation and is getting worse, thanks to a series of new cuts that disproportionately favor the wealthy.
With taxes, “progressive” simply means that people with higher incomes pay a greater share of overall taxes. “Regressive” means the opposite: The tax system is structured such that lower-income people and families pay more.
Such is the case in Arkansas, largely thanks to the state’s heavy reliance on sales and excise taxes to fund its budget. Excise taxes are taxes on specific goods and services, like tobacco, gasoline and alcohol. The burden of sales and excise taxes falls more heavily on the poor, because people with less money naturally spend a greater share of their income on consumption — that is, buying things — rather than saving or investing.
Arkansas, unlike states such as Texas and Florida, does at least have an income tax. But our income tax isn’t very progressive: It imposes similar income tax rates on those making, say, $50,000 annually or $500,000 annually. Most families in the state already pay the top percentage, because our top rate is set so absurdly low. And the system is becoming even more regressive, as Republican legislators and the governor steadily chip away at the top rates for individuals and corporations. That’s creating a “flatter” tax structure that benefits those at the top of the income ladder.
The authors of the report say Arkansas is among the states with “upside-down tax systems that ask the most of those with the least.” For a helpful breakdown of who pays what proportion of taxes in Arkansas (including both state and and local), check out the two-page state snapshot on p. 108.
Among the interesting nuggets in the report: Arkansas is among only five states that do not offer any sort of property tax breaks designed to help lower-income homeowners. Over half of states now offer a so-called “circuit breaker” program designed to prevent a scenario in which a property tax bill swallows an unreasonable portion of a family’s household budget.
“Another 16 states offer an income-limited property tax cut. And five states do not offer any kind of income-targeted property tax break at all (Arkansas, Kentucky, Mississippi, South Carolina, and Texas),” it says.
Jim Hudson, the state’s finance secretary, took to Twitter over the weekend to grouse about the report and how the Arkansas Democrat-Gazette — that bastion of liberal opinion — covered the story. In fact, Hudson said, the beneficent rich pay plenty because business owners and those with healthy stock portfolios also effectively pay corporate taxes. And no one should complain about a regressive tax system in Arkansas, since poor people benefit from the great social safety net we provide.
In fact, since wealthier Arkansans tend to be owners of businesses or have equity in public corporations, they derivatively pay income taxes within the corporate income tax structure as well.
— Jim Hudson (@jimhudson4) January 14, 2024
Fifth, whatever regressivity may be present on the sales tax side, it’s largely offset by the social services benefits on the expense side of the state budget. The poor benefit disproportionately (rightly so) in the largest areas of the state budget.
— Jim Hudson (@jimhudson4) January 14, 2024