Arkansas lawmakers approve $192M tax cut legislation, end session

Arkansas Gov. Sarah Huckabee Sanders signed another round of income tax cuts into law Wednesday afternoon, marking the conclusion of a three-day special session.

Arkansas legislators gave final approval to the cuts Wednesday morning. It marked the fourth time the General Assembly has lowered income taxes since the Republican governor took office in 2023, and came on the heels of an increase to the homestead tax credit passed during the fiscal session. 

Sanders called lawmakers back into session to lower the top individual income tax rate from 3.9% to 3.7%, retroactive to Jan. 1 of this year. Legislators also reduced the top corporate income tax rate from 4.3% to 4.1% effective next year. 

Finance officials say the cuts will cost the state nearly $192 million for the fiscal year that begins July 1 and nearly $145 million each fiscal year afterward. Sanders signed a $6.7 billion budget last week, which was projected to result in a $310 million surplus for the fiscal year under the previous tax brackets. 

Department of Finance and Administration Secretary Jim Hudson said earlier this week that state revenue collection beat the department’s forecasts and “significantly outperformed expectations” in April.

The Arkansas House and Senate approved identical tax cut bills along party lines Wednesday. The legislation received a 27-6 vote in the Senate and a 79-18 vote in the House. 

Democrats have argued high-earners and corporations will benefit from the tax cuts more than working families. They cited concerns about cutting state revenue as Arkansas faces uncertainty due to looming federal funding cuts.

They’ve also said money supporting tax cuts could be better used to address issues, such as food insecurity, early childhood education and rural healthcare.

During debate in the Senate, Mabelvale Democrat Sen. Fred Love argued the tax cuts will be minimal for the average Arkansan who is dealing with the rising costs of groceries and gas. 

“We need to really think about what we can do to provide some significant relief,” Love, the Democratic nominee for governor challenging Sanders, said. 

Sen. Jonathan Dismang, a Searcy Republican who sponsored the tax cut legislation, called the reductions significant and part of a yearslong, “diligent, thoughtful strategy.”  Some Republican lawmakers have argued lowering the taxpayers’ burden is the best use of the state’s money.

“It’s a slow process, I apologize that it’s not fast enough, but we will continue to provide tax relief to Arkansas families,” Dismang said.

Arkansas has run budget surpluses exceeding hundreds of millions of dollars after previous tax cuts. Sanders said the latest tax cut “doubles down” on a strategy that she said has lowered Arkansas’ cost of living and bolstered economic growth. 

“Arkansas continues to do really well while cutting taxes,” Sanders said prior to signing the legislation. “I think it shows that what we’re doing is actually working. And instead of fighting against and trying to pick it apart, I think people should get on board.”