Saturday, April 4, 2015

Left behind in Arkansas: Who didn't get income tax cuts

Posted By on Sat, Apr 4, 2015 at 7:56 AM

click to enlarge HAPPY DAY: Smiles abounded when Gov. Asa Hutchinson signed his income tax cut bill. Perhaps not at the homes of 500,000 working poor families who got nothing.
  • HAPPY DAY: Smiles abounded when Gov. Asa Hutchinson signed his income tax cut bill. Perhaps not at the homes of 500,000 working poor families who got nothing.

The Kansas tax cut plan reminds me again of the unfairness of the tax cuts enacted by the 2015 legislature.

Gov. Asa Hutchinson and the legislature gave income tax reductions to people making between $21,000 and $75,000 a year in net income. This is described as a middle class tax cut, but the unique nature of Arkansas tax  law expands this cut to higher income families with two working spouses because married people can file separately on the same return and capture the tax break for both workers, even though the combined daily income theoretically could be as high as $150,000.

The legislature also extended a whopping 2013 tax cut on capital gains income from the profit on sale of assets. This is a gain overwhelmingly enjoyed by the highest income people in Arkansas. In addition to putting the capital gains rate at 3.5 percent — half the top tax rate paid on income from toil  — the measure gives a total exemption to any gain over $10 million dollars.

To illustrate:  An investor in a company who got stock free in a startup or through stock option plans, could reap, say, a $25 million return on sale of that stock and get a tax-free ride on $15 million of the gain, along with a one percent reduction in the tax on the first $10 million. Altogether, that sale (not hypothetical based on some transactions I've seen reported in Arkansas this year),  would produce a tax savings of some $600,000.

All this is a setup for some updated figures on those left behind in the tax cut plan, the working people who make less than $21,000 a year. Hutchinson and legislative leaders said they simply couldn't afford to give the poorest, most struggling Arkansas workers a tax break. They could afford a break for millionaires, though it's being paid by cuts in library, health center and other spending that tends to help the struggling more than the wealthy.. (No, poor workers don't get a bunch of free "welfare." Many earn too much to qualify.) The legislature also refused a low-cost plan for a state earned income tax credit for the working poor offered by Rep. Warwick Sabin.

The Arkansas Department of Finance and Administration has compiled for me a breakdown, by income level, of 2013 tax returns that illustrates how many people were left behind.

The figures show tax returns filed for every $1,000 of income by full-time residents. The chart shows  total net income after exemptions for retirement and other income and then the tax liability on those returns

It should — but probably won't — disabuse legislators of the notion that the working poor don't pay taxes. 

The list below is a snapshot of the numbers, by $1,000 increments, between $1 and $20,999 for tax filers in 2013.

In sum, these are roughly 540,000 Arkansas families who paid some $115 million in income taxes on net income less than $21,000. The state legislature couldn't afford to give them an income tax cut. Just about everybody else got some help if they have any capital gains income. The working poor are, apparently, the least deserving of Arkansas citizens.

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Here's the complete table, broken down by low-income, standard deduction and itemized tax filers.

Look down the list and you'll see the working poor shouldered way more of the state income tax burden than the 44 taxpayers who reported income between $5 and $10 million in 2013. They paid $66 million in taxes. I'd wager all of them had some capital gains income in those totals. Lucky them. They'll get a tax break this year.

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