Thank you Senator Jonathan Dismang for this excellent explanation.
Here is some information about what we did durning Special Session, specifically how they will impact low and middle income earners.
- We created an individual income tax credit of $150 per payer ($300/couple) for the 2022 tax year. This is only available to Arkansas residents and it starts phasing out at $87,000 of taxable income per payer ($174,000/couple). This is non-refundable. The credit will trigger a change in the withholding tables and provide immediate relief for most payers by increasing their net paychecks for the remainder of the calendar year.
- We advanced the income tax cuts which were passed in the previous special session and which are scheduled to begin over the next few years. We had previously prioritized and front loaded the tax cuts for the low and middle income earners to begin on 1/1/22. This bill simply moved the top rate reduction of 4.9% to the same start date of 1/1/22. This change positively impacts all payers making above $24,600. Additionally, it advances the corporate rate reduction of 5.3% to 1/1/23. As with the above credit, this will trigger a change in the withholding tables and provide immediate relief for most payers by increasing their net paychecks for the remainder of the calendar year.
- We brought our Section 179 depreciation election into alignment with the Federal Section 179 election. The Section 179 election allows for the full depreciation (expensing) of a qualifying asset in the year which the asset was purchased, as opposed to expensing the cost of the asset over the estimated useful life of the asset. A qualifying asset generally refers to equipment or items with a depreciable life of 5 years. Over the years, the IRS has raised their cap on what could be expensed. We are currently capped at $25,000 and the IRS has a limit of $1,000,000. This change is also retroactive as of 1/1/22 and it will benefit every farmer and small business owner in our state.
End result: This bill eliminated income tax for over 95,000 low income earners for this tax year. Combined with the last special session tax cut bill, over 200,000 low income earners will owe no tax. In total, we have cut over $310 million in taxes for low and middle income earners since December.
The act will only temporarily change general revenue.
- Credits-The income tax credit only applies to the 2022 tax year.
- Advancement of Previous Tax Cuts-As stated above, these are tax cuts we have already debated and passed. The low and middle income tax cuts were prioritized and effective 1/1/22. This bill moved the remainder of the previously established individual income tax cuts to the same start date of 1/1/22. This only sped up the change to general revenue.
- Depreciation-This decrease in general revenue is only due to a timing issue.
Not a dollar of the surplus was touched by this tax cut bill. We do not budget tax cuts or ongoing expenses with one-time money, nor do we budget ongoing expenses with revenue which we know will not be there in the future.