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When I was running for governor in 2014, I promised to cut our income taxes by $100 million. With the support of the General Assembly, we not only kept that promise, but over the course of the past five years, we have reduced our income taxes by over $250 million each year.
On this New Year’s Day, the 1st day of 2020, our top individual income tax rate will be reduced again. The top rate will be cut from 6.9 percent to 6.6 percent, and next January, it will be reduced again – down to 5.9 percent.
The latest reductions were approved last year when the 92nd General Assembly passed the 5.9 Percent Tax Cut Plan, which was the third phase of my three-part plan to reform Arkansas’s tax code.
We also reduced the corporate income tax rate from 6.5 percent to 5.9 percent. This will be phased in over time.
These are important steps toward allowing all Arkansas taxpayers to keep more of their income as well as making our tax rate more competitive with our neighboring states.
These changes began in 2015, and over the course of three legislative sessions, we reduced taxes for everyone in Arkansas.
What that means for Arkansas is that the state will be collecting $250 million less in taxes every year. Over 10 years, this means that Arkansas taxpayers will have $2.5 billion in their pocket that state government would have spent otherwise.
Of course, we made up for the lost state revenue with a growing economy. In other words, more people are working with higher wages, and that means there are more taxpayers who can support our essential services. Yes, we have cut taxes, and at the same time we have raised teacher pay; invested more in education; and increased funding for important safety nets for our most vulnerable citizens who are struggling and need help.
Whenever we talk about cutting taxes, we must ensure that we leave enough money in the bank and have enough coming in to fully operate the state. There are certain services that we as a state have a moral obligation to fund. We must always provide the money to care for the less fortunate, to support our colleges and universities, to maintain our court and prison systems, and to repair and improve our highway system, among many things.
When we find ways to responsibly reduce our income tax, we accomplish several things. Individual taxpayers keep more of the money they earn. When taxpayers keep more money, they can care for their families. They support the local and state economies. Tax cuts also allow families to put away money for emergencies and to achieve their dreams. This economic activity promotes the creation of jobs and industry. And now that our top income tax rate will be 5.9 percent next year, we can attract more companies as they are considering expanding into other states.
Through 2020, the biggest benefit that taxpayers will have noticed from tax cuts is a bigger tax refund. The next phase for the tax cut is a revision of the withholding table that employers use when they calculate how much money to withhold from wages. After we roll out the revised withholding table later this year, taxpayers won't have to wait until they file taxes to realize the bigger payday. They will see more money in their paycheck every week.
When we talk about all the work and the thinking that goes into cutting taxes, it is easy to forget why we do this. I wanted to reform our tax code for a couple of simple reasons – to grow our economy and to improve the quality of life for all Arkansans.
I’m often asked whether we’ll cut taxes any more. My answer to that question is that our first priority is adequate funding of education. Then we must assure public safety and fund essential health care.
But yes, we can meet those critical needs, and as the economy grows, we can ultimately reduce our individual tax rate to 5 percent. But that will take time.