Policy Documents

No Income Tax Increase. Reduce Top Rate to Highest Border State Rate.

July 13, 2004

Once upon a time many economists did not accept the idea that tax rates are a factor of economic development. The literature suggests that is no longer the case. Tax rates are a factor of economic development along with private property, the right of contract and the rule of law; infrastructure; a functional education system and skilled labor force; and a non-capricious regulatory policy. Rates are not the only factor, but entrepreneurs do take them into consideration when making decisions about employment.

Arkansas must address its high tax rates on capital if officials hope to successfully compete with other states for businesses that create good-paying jobs. The following chart shows that the Arkansas state income tax rate (top bracket) is higher than the six states that share its border:

State Top Rate
Arkansas 7.0%
Louisiana 6.0%
Missouri 6.0%
Oklahoma 5.5%
Mississippi 5.0%
Tennessee Income tax limited to dividends and interest
Texas No state income tax

(Source: The Federation of State Tax Administrators)

Democratic Gov. Bill Richardson of New Mexico has cut income and capital gains tax rates to make his state's economy more competitive. His state is creating new jobs at one of the fastest rates in the U.S. Gov. Richardson has sent a signal to entrepreneurs: You are welcome to create new jobs and income growth in New Mexico. Arkansas officials should follow his lead.

The top Arkansas rate should be reduced to 6.0 percent, the highest rate among bordering states.

  • Arkansas has the highest income tax rate (top bracket) among bordering states. The top state rate should be reduced over a multi-year period to make Arkansas more attractive in the competition for capital investment.