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Rep. Ray proposes removing 3% cap on inflation indexing for Arkansas income taxes
Summary
House Bill 1065 would eliminate the 3% statutory cap on annual inflation adjustments to Arkansas tax brackets and the standard deduction; committee discussion focused on fiscal exposure and regional inflation metrics, and no vote was taken.
State Representative David Ray presented House Bill 1065, which would remove the statutory 3% cap on annual inflation indexing for Arkansas personal income tax brackets and the standard deduction.
Ray said the cap means in high‑inflation years taxpayers absorb increases that indexing should otherwise offset. He told the Revenue & Taxation Committee the proposal also shifts indexing from a national to a regional inflation metric to better reflect Arkansas price trends.
Ray reviewed recent regional inflation numbers: committee materials circulated showed the region’s 2024 inflation at about 2.6 percent, below the 3 percent cap. He said the fiscal note shows a possible general revenue reduction of roughly $3 million under certain inflation scenarios but argued that the bill’s impact depends entirely on future inflation rates.
Committee members questioned the scope and fiscal risk. Representative Duane reviewed historical regional inflation spikes in 2021–2022 (4.9% and 8.9% in his cited years), noting the fiscal exposure would have been concentrated in those high‑inflation years. Representative Wooten and others raised concerns about budgeting and the state’s rainy day reserves.
Ray characterized the bill as “catastrophic taxation insurance” to prevent unlegislated tax increases when inflation spikes, and he asked colleagues for cosponsors as he builds political support. The committee did not vote on HB1065 at the hearing.
