Discussions around potential tax cuts are resurfacing with Governor Sanders and legislative members. Now is a good time to look at how the state budget works and what could happen if they reduce or eliminate state income taxes.
The state budget gives you an idea of the state’s priorities and areas perceived as needing the most financial support. The state budget outlines how the state will spend the money collected through income tax, sales tax, and other sources. This money pays for community programs, public transit, housing assistance, and many other services that people with disabilities rely on to live independently in their communities.
The Budget Process
In Four Steps
- Governor Proposes a Budget
Each November, before the legislative session, the Governor submits a proposed budget and alongside an official economic forecast. - Legislature Develops a Final Budget
During the session, the legislature develops their own budget through the Joint Budget Committee, that includes both Representatives and Senators, as well as it’s subcommittees. - Governor Signs or Vetoes the Budget
The Governor can either sign this budget, veto it, or use a “line-item” veto to eliminate certain parts of the budget without rejecting all of it. - Final Budget is Implemented
Once signed, this budget sets out the parameters of what kind of investments, programs, and policies can be implemented in the upcoming fiscal year.
Any leftover money after the governor approves the budget is surplus money. Arkansas has had more surplus money than ever for the last few years due to the federal aid received during the pandemic. The large amount of surplus money has prompted discussions among legislators. Some argue that the state is collecting more taxes than it needs to. So, they have cut the tax rate for individuals and corporations several times over the last few years.
41% of the state budget comes from personal income tax, and 8% comes from corporate income tax. These tax dollars make up roughly half of the budget every year. The other half of the budget is mainly money collected from sales taxes. You pay sales tax whenever you buy something. When you cut income taxes, there is either less money available for the state budget or the money has to come from somewhere else. This could include increased sales taxes.
As these discussions unfold, it is important to consider the broader impact of tax cuts. Lowering taxes might offer taxpayers immediate relief. It could also affect the services and programs that the disability community depends on. It is important to consider both short-term economic relief and long-term social welfare.
*PowerPoint created by Arkansas Advocate for Children & Families