The Largest Tax Cut in Arkansas History

Arkansas has passed the largest income tax cut in the state’s history.

Two bills were passed by the Arkansas House of Representatives and the Arkansas Senate in December 2021 and were signed into law by Gov. Asa Hutchinson on December 9, 2021. These bills will provide approximately $500 million in annual tax relief for Arkansans once all the provisions go into effect in 2025.

The latest tax cut in Arkansas has already been recognized as a standout example of tax reform. In a post entitled “Arkansas’ Sustainable Tax Reform: A Gift That Will Keep On Giving,” the Tax Foundation declared, “Arkansas’s fourth round of tax reforms is a case of tax reform done right.”

The new tax cuts will benefit a large cross-section of Arkansans across the state. “This historic tax cut puts more money into the pockets of all Arkansas taxpayers and will lead to a brighter future here in the Natural State,” said Gov. Asa Hutchinson.

Under the two bills, Arkansas will cut its top income tax rate from 5.9% to 4.9% by 2025. The top individual income tax rate, currently 5.9%, will decrease to 5.5% in 2022, 5.3% in 2023, 5.1% in 2024, and 4.9% in 2025.

The tax cut will include a $60 tax credit for low-income Arkansans, eliminating taxes for more than 100,000 individuals in the state.

Corporate income tax rates will also be lowered in the coming years. The top corporate tax rate will decrease from 6.2% to 5.9% in 2022. Under the new bills, the corporate tax rate will decline to 5.7% in 2023, 5.7% in 2024, and 5.3% in 2025, provided that revenue goals are met.

Lowering taxes in Arkansas will have a positive impact on economic development and business recruitment in the Natural State. By lowering the income tax and corporate tax burdens, Arkansas is making the state even friendlier for businesses.

“Through conversations with several companies looking to create jobs and move operations to this state, it is clear to me that one of the main factors these companies take into consideration when deciding where to locate is a state’s income tax burden. This change will increase our competitiveness as a state in attracting industry and talent to Arkansas,” said Gov. Hutchinson.

“Enacting this historic tax reform is a major win for Arkansas’ economy that will benefit Arkansans and businesses across the state,” said Arkansas Secretary of Commerce Mike Preston. “Thanks to Gov. Hutchinson’s tax reform initiatives, Arkansas is more economically competitive and is well-positioned to encourage business growth and to attract new and expanding businesses to the state.”

Arkansas has consistently cut taxes to provide relief for individuals, families, and businesses.

State leaders have enacted multiple tax cuts that have benefitted Arkansans during Gov. Hutchinson’s administration. There have been tax cuts in 2015, 2017, and 2019, that have collectively provided more than $250 million of income tax relief for Arkansans.

All of the tax cuts have been possible as a result of Arkansas’ balanced budget – a requirement under the state’s Revenue Stabilization Act. “It's a signal that we manage our state from a budget standpoint, which means we're applying some good business principles to state government,” said Gov. Hutchinson.

Cutting taxes in Arkansas was a simple decision for Gov. Hutchinson. The decision boiled down to helping Arkansans and boosting the state’s economic competitiveness. “It allows hard-working Arkansans to keep more of their hard-earned money and also makes Arkansas more competitive with our surrounding states, spurring job creation and economic growth for years to come,” he said.