More Tax Cuts for Arkansans

In addition to the state’s largest tax cut in history (reducing the sales tax on groceries by 50%) more good news arrived this week on a variety of tax cuts. These measures are designed to boost the economy, make Arkansas more attractive to business and retirees who carefully study tax implications before moving to a new state, and help many of our most vulnerable residents.

Increase in Homestead Tax Credit Becomes Law

An increase of $50 in the homestead tax credit was signed into law. Currently, homeowners in Arkansas are eligible for a credit of up to $300 on taxes for their principal residence. The new maximum credit of $350 will become effective with the 2007 assessment year and will appear on property tax bills in 2008.

There are approximately 696,000 homesteads in Arkansas and it is expected that about 538,000 homesteads will we benefit from some or all of the additional $50 tax credit.

The homestead tax credits are financed by a one-half percent sales tax collected by the state, which, in turn, reimburses the counties for the property taxes they did not collect because of the tax credits. According to the state finance department, a $60 million balance was on hand at the end of last year. Governor Beebe has stated, “We were able to determine that we could conservatively and reasonably [increase the credit] and still be sound going into the future.”

Income Tax Cuts for Working Poor Move Closer

It looks like state income tax cuts for low-income people are on the horizon. The House tax committee has endorsed a bill that would exempt approximately 62,000 Arkansans from paying state income tax.

In its current form, the bill would eliminate the following groups from state income tax:

Single people with an annual gross income tax (AGI) of less than $10,200;
Married couples filing jointly with less than two dependents and AGI less than $17,200;
Married couples filing jointly with two or more dependents and AGI less than $20,700;
Head of Household filers with AGI less than $13,700.

Arkansans with income above the federal poverty level but less than 33% above it would receive tax credits to partially offset state income tax. The state finance department estimates 89,000 taxpayers would be eligible for these credits.

This is a step in the right direction. Just imagine a family of four (or more) trying to make ends meet on less than $20,700 a year. If this bill becomes law, it would provide tax relief for people in low-paying jobs and cut the workload at the Department of Revenue at the same time.

A Bill Advances to Equalize Taxes on Military Officers and Enlisted Personnel

Under existing law, enlisted military personnel do not pay state income tax on the first $9,000 of pay. However, officers are taxed on all military pay over $6,000.
The $3,000 difference seems strange to me and apparently to Rep. Sandra Prater, D-Jacksonville, as well. She has introduced a bill that would make the first $9,000 of military pay exempt from state income tax, regardless of rank. The bill passed the House and Senate and has been sent to the Governor.

Reducing Sales Taxes on Utilities Paid by Manufacturers

Bills to reduce the sales tax that manufacturers pay on natural gas and electricity seem to be sailing through the legislature. If signed into law as expected, the sales tax paid on utilities used by manufacturers would decrease from 6% to 4.5% on July 1, 2007. Another scheduled decrease would drop the tax to 4% on July 1, 2008.

State officials say the decreases will reduce state revenue by $20.2 million next fiscal year and $30.5 million the next year.

Perhaps your first reaction to this news might be “What about the taxes I pay on utilities? I’d like to pay less, too.” But the situation bears a closer look.

Arkansas needs to retain the industry it has while at the same time it must recruit more economic development to the state. The 6% sales tax on utilities puts Arkansas at a disadvantage. Most of the neighboring states charge manufacturers lower or even zero sales tax on utilities.

The Arkansas Chamber of Commerce is a strong advocate of this tax cut. If it passes, Arkansas will be in a more favorable position to recruit new employers. Arkansas is still trying to land a huge Toyota plant and there are other possibilities on the horizon.

I say go for it - I’m tired of hearing about the ones that get away, especially now with the recent loss of manufacturing jobs in this area.

For more information on these subjects:

http://www.nwanews.com/adg/National/182567/

http://www.nwaonline.net/articles/2007/02/22/topics/assembly07/022207lrlegpropertytax.txt

http://www.nwanews.com/story.php?paper=adg§ion=News&storyid=182003

http://www.nwanews.com/story.php?paper=adg§ion=National&storyid=182089

New Tax Cut Benefits Everyone in Arkansas

Effective July 1, 2007, the state sales tax on groceries will be cut in half – from 6% to 3%. The details are still being worked out but this much is definite: When you buy groceries for human consumption, you will be taxed 3% less than the current rate.

The average savings is estimated to be at least $200.00 per year for a family of four.

Other items you buy at the grocery store will continue be taxed at 6%. That includes such things as paper products, cleaning supplies, pet food, diapers, personal grooming items and miscellaneous household supplies.

The reduction in sales tax is possible because the State of Arkansas has a huge surplus on hand and that surplus seems to be increasing each month. One recent estimate is an $844 million surplus in the state’s coffers by June 30, 2007.

There are innumerable ways to spend the surplus – roads, education, tax rebates and reductions, health care, ad infinitum.

But here is the plain truth: No tax is more regressive and repugnant than a tax on food! Everyone has to eat and levying a sales tax on food simply means that the lower a person’s income, the higher the percentage of their income they must spend in order to feed their families.

I urge the legislature and Governor Beebe to eliminate the remaining 3% tax on groceries in the near future. But that might be hard--it would have been better not to tax food in the first place, as other states have done. But this tax cut is a step in the right direction.

Note: County and city sales taxes remain unchanged. It’s possible some local governments may find it possible to lower their tax rates in the future but they remain in place for now. For instance, Fayetteville, Springdale, Rogers, and Bentonville all have sales tax rates of 2%. In addition to the city taxes, Benton County assesses an additional 1% while Washington County’s sales tax rate is an additional 1.25%.

Please watch for an additional article I expect to write soon on other tax cuts already signed into law or under consideration in the legislature.

For more information:

http://www.nwanews.com/adg/National/182567/

http://www.nwaonline.net/articles/2007/02/16/topics/assembly07/021607lrleggrocerytax.txt

http://www.arkansas.gov/dfa/excise_tax_v2/et_su_local.html

Arkansas Increases Minimum Wage

When Arkansas enacted legislation recently increasing the minimum wage from $5.15 to $6.25 per hour, it seemed everyone I talked with had an opinion of the benefits or the negative repercussions of such a move.

I’m going to pass along some of the comments, but first some facts:

Some of our neighboring states, namely Texas, Oklahoma, and Missouri, have done nothing to increase the minimum wage in their states above the Federal minimum of $5.15. Other neighbors – Tennessee, Louisiana, and Mississippi - don’t even have a minimum wage law. Kansas is the only state below the Federal minimum – a miniscule $2.65.

About half the states have minimum wage rates the same as the Federal rate. The state of Washington is currently the highest at $7.63 and that amount will increase periodically because it is pegged to inflation. Most of California is set at $6.75 but in the San Francisco area, it is $8.50. Minnesota is $6.15, Illinois $6.50, Massachusetts and New York are $6.75, and Oregon $7.50. The other states have rates between Washington’s and the Federal rate of $5.15.

Now for a sampling of the conflicting comments:

“Increasing the minimum wage will increase inflation and unemployment.”

“This will help the poorest paid workers in our state.”

“This will help the economy by giving workers more disposable income.”

“It will be harder for young people to find a job.”

Arkansas’ $1.10 increase becomes effective October 1, 2006. Only time will prove the whether the effects of this increase are beneficial or detrimental.

Click Comments below to let us know your thoughts.

For more information:
http://www.dol.gov/esa/minwage/america.htm
http://en.wikipedia.org/wiki/Minimum_wage
http://www.stateaction.org/blog/?p=140

Arkansas Existing Home Sales up 30%

Arkansas continues to experience record growth in existing home sales, outpacing every other state in the country in the fourth quarter, according to a study by the National Association of Realtors. It was the second consecutive quarter that Arkansas’ rate was the best in the country. Arkansas has been among the top 10 states in sales of previously owned homes for each of the past five quarters.

Arkansas’ sales of previously owned homes were up almost 30 percent in the fourth quarter from a year earlier, the study showed. The third quarter of 2005 was also strong, with 32 percent growth. Nationally, existing home sales were flat in the fourth quarter, up just 0.3 percent.

In NW Arkansas, one explanation of these statistics could be the rapid increase in new-home prices, putting most of them beyond many people’s reach. Builders are no longer constructing small “starter” homes due to skyrocketing land costs and increased construction and development costs. As recently as about 3-4 years ago, the typical starter home was about 1000-1200 square feet and could be purchased for under $100K. The new starter home in NWA (particularly in the major towns of Fayetteville, Springdale, Rogers and Bentonville) is larger than that of the past, but prices are also significantly higher, starting at about $180K and going up from there. Salaries are not increasing at the same rate as home prices. Thus for people of modest means who don’t qualify for a new home of this type, the purchase of an existing home or paying rent are their only choices.

Source: Northwest Arkansas Times, February 17, 2006