HB1065
To Create The Inflation Reduction Act Of 2025.
AI-Generated Summary
This bill, titled the "Inflation Reduction Act of 2025," aims to adjust Arkansas's state income tax laws. It proposes to remove the existing three percent cap on annual increases to both the standard deduction and individual income tax tables. These adjustments are intended to account for inflation. The bill specifies that the Consumer Price Index (CPI) for All Urban Consumers in the West South Central division of the South Region, as published by the U.S. Department of Labor, will be used as the basis for these adjustments. The CPI for a calendar year will be calculated as the average of the index over the twelve months ending on August 31 of that year. The legislation amends existing Arkansas Code sections related to the method of annually adjusting tax tables and indexing the standard deduction to inflation. These changes are set to take effect for tax years beginning on or after January 1, 2025.
Potential Impact Analysis
Who Might Benefit?
The primary beneficiaries of this bill, if enacted, would be individual income taxpayers in Arkansas. By removing the cap on inflation adjustments to the standard deduction and tax tables, taxpayers would be able to benefit from larger deductions and potentially lower tax liabilities as the cost of living increases. This would effectively shield more of their income from state income tax, preserving their purchasing power in the face of inflation. The Department of Finance and Administration would also be involved in implementing these adjustments.
Who Might Suffer?
The primary entity that could be negatively impacted by this bill is the state of Arkansas's general fund. By increasing the standard deduction and tax tables without a cap on inflation adjustments, the state may experience a reduction in overall income tax revenue. This decrease in revenue could potentially affect the state's ability to fund public services and programs if not offset by other revenue sources or expenditure reductions. The state government, as a whole, would need to manage the fiscal implications of potentially lower tax receipts.