ARKANSAS PER CAPITA INCOME GROWTH
ANEMIC SINCE 1971 INCOME TAX HIKE

"In order for Arkansas to move from a low-wage to a high-wage economy, the state needs to decrease marginal tax rates ...in order to attract (high-income) workers to Arkansas." ("Taxes And Savings in Arkansas." Murphy Commission, 1998)

(June 2006) Democratic Gov. Dale Bumpers and the General Assembly raised Arkansas' top income tax rate to "broaden the tax base" in 1971(1). Yet Arkansas' per capita income, expressed as a percentage of the U.S. total, has barely improved, moving from 71 (1971) to 77.7 percent (2005) over the 34-year period, according to data from the U.S. Bureau of Economic Analysis. Arkansans would have to wait until the final decade of the 21st Century (2090-2100) to enjoy per capita income on a par with the U.S. average if growth continues at its current anemic rate.

The 1971 income tax increase reversed a decades-long strong growth trend and left Arkansas with the highest income tax rate among bordering states (Mississippi, Missouri, Louisiana, Oklahoma, Tennessee and Texas).

Income Stagnation: The 1930s
One has to turn to the 1930s-the decade of the Great Depression-to find weaker income growth than in recent years.

Arkansas per capita personal income was 44 percent of the U.S. in 1929, the first year data was compiled in the BEA time series. The Great Depression started that year, and by the time it ended in 1933 Arkansas per capita income had fallen to 41 percent of the U.S. By decade's end (1939) it had returned to 44 percent.

Growth Decades: The 1940s, 1950s & 1960s
Arkansas per capita income increased as a percentage of the U.S. in the next three decades.
In 1941, at the onset of World War II, Arkansas per capita income was 47 percent of the U.S. It was 59 percent at war's end in 1945 and again in 1949. It was 56 percent in 1950, 62 percent a decade later in 1960, and 68 percent in 1969. If this growth rate had continued Arkansas would have exceeded 100 percent of the U.S. average in the current decade (2000-2009).

To summarize, Arkansas per capita income increased from 44 to 71 percent of the U.S. total between 1939 and 1971.

Anemic Income Growth (1971-2005)
The trend in recent decades is anemic growth in Arkansas per capita personal income. Fiscal policy changes effect economic behavior with a time lag. Arkansas per capita income was 71 percent of the U.S. in 1971 and 76 percent in 1973. Income growth stagnated for the rest of the decade, reaching 77 percent of the U.S. in 1979. It fell to 75 percent in 1989, and was 76 percent in 1999. Today, Arkansas per capita income, at 77.7 percent of the U.S., is barely above its high point of the 1970s.

- Greg Kaza

1 Gov. Bumpers' originally proposed increasing the top income tax rate from five to nine percent (Arkansas Gazette, March 1 and 4, 1971). The measure fell short of votes in the General Assembly, forcing a compromise that still left Arkansas with the highest top income tax rate (7 percent) among its six neighboring states.