New Book Outlines Arkansas Tax Reform Options

November 14, 2016
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Washington, DC (Nov. 14, 2016) - Policymakers in Arkansas are considering the first comprehensive reform of the state’s tax code since 1971. To help inform this debate, today the Tax Foundation—in conjunction with Arkansas Center for Research in Economics at the University of Central Arkansas—released a new book, Arkansas: The Roadmap to Tax Reform, offering a menu of potential options to improve the state’s tax system.

The book’s authors spent months not only researching the tax and economic history of Arkansas, but also traveling around the state to speak with state and local government officials, business owners, and ordinary taxpayers. Based on this research, this book offers policymakers a menu of potential options to improve the state’s tax system.

These are some of the key findings:

  • The individual income tax is uncompetitive compared to Arkansas’s neighbors, with the state’s marginal rate the highest in the region. The state also faces a direct challenge from Texas and Tennessee, two no–income tax states that share a border with Arkansas.
  • Arkansas also has a relatively high corporate tax rate for the region, and offsets the impact with tax credits that favor certain businesses over others. The state should seek to lower the rate and remove these targeted tax breaks.
  • The state’s sales tax applies to some business inputs, which can lead to multiple layers of taxation built into the final cost of consumer products. Another issue with Arkansas’s sales tax base is that American consumption habits have shifted over the years. Economic activity is increasingly moving toward services, many of which are not subject to sales taxes. Expanding the sales tax base to cover more consumer activity would give policymakers an opportunity to repeal economically harmful tax provisions.

“The last tax cut the state enacted two years ago moved things in the right direction, but the cuts were very targeted,” said Jeremy Horpedahl, an assistant professor of economics at the University of Central Arkansas and a scholar with ACRE. “Arkansas needs to consider more than just targeted measures, and instead it should enact a comprehensive tax plan that benefits all Arkansans. This book provides a number of ideas to help move us in that direction.”

Tax Foundation Economist Nicole Kaeding added, “During our months of travel across the state of Arkansas, Arkansans told us several key things affirming their desire for tax reform. Taxes are too complicated and too complex, and Arkansas is falling behind other states.”

“Arkansans view the current tax code as unfair. Rates are too high and punish too many hard-working residents, and tax credits subsidize far too many businesses,” Kaeding continued. “Arkansas policymakers are in a strong position to ameliorate the many failings of state’s tax code, and this book is the resource they need to accomplish that goal.”

Media Contact:
John Buhl
Media Relations Manager
Tax Foundation
202-464-5120 (office)
buhl@taxfoundation.org

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