Trouble is brewing in Arkansas. Tax fairness advocates are anticipating that legislation to further reduce the amount of taxes paid on capital gains income will be a hot issue in the upcoming legislative session. Arkansas Advocates for Children and Families (AACF) released a brief this week explaining that Arkansas already offers a 30 percent exclusion for capital gains income and is one of only eight states that offers a substantial tax break for capital gains.
CTJ and ITEP have long argued that all types of income, including capital gains, should be taxed in the same way. Providing special breaks for capital gains is regressive, in addition to making tax rules needlessly complicated. Most low- and middle-income families don't have any capital gains income and therefore don't benefit from this tax break.
The AACF brief cites ITEP data and explains, “For 2010, the poorest 80 percent of Arkansas taxpayers (those with incomes less than $71,000) are projected to earn only 2 percent of the capital gains income earned by the state’s taxpayers. In contrast, the top 1 percent of Arkansas taxpayers, those with incomes of $352,000 or more, will likely earn 75 percent of all capital gains income in Arkansas.”
Further enhancing the already generous exclusion would benefit well off Arkansans, cost the state valuable revenues, and certainly do nothing to improve tax fairness. For more on capital gains taxation in the states, see ITEP’s report on this issue.