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HB 1065

TO CREATE THE INFLATION REDUCTION ACT OF 2025.

2025 Regular Session Introduced by Brandon Achor and 51 co-sponsors

HB 1065 sought to eliminate the 3% cap on Arkansas income tax adjustments, allowing for more accurate inflation-based tax relief for residents, but it died in committee.

Died in House Committee at Sine Die adjournment.
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Bill Summary · HB 1065

Summary of HB 1065: Inflation Reduction Act of 2025

Bill Number: HB 1065
Title: To Create the Inflation Reduction Act of 2025
Status: Died in House Committee at Sine Die adjournment
Introduced: December 12, 2024
Sponsors: Rep. Ray and Sen. Dismang

Purpose and Intent

The Inflation Reduction Act of 2025 aimed to amend Arkansas's income tax laws by removing the existing cap on annual inflation adjustments for individual income tax tables and the standard deduction. The bill sought to ensure that tax adjustments more accurately reflect inflationary trends, thereby potentially reducing tax liabilities for Arkansas residents.

Key Provisions

  • Repeal of the 3% Cap: The bill proposed to eliminate the current 3% cap on annual inflation adjustments to the individual income tax tables and the standard deduction.
  • New CPI Reference: Adjustments would be based on the Consumer Price Index (CPI) for the West South Central Division of the South Region, rather than the broader CPI for All Urban Consumers.
  • Effective Date: The changes were set to take effect for tax years beginning on or after January 1, 2025.

Fiscal Impact

  • Estimated Revenue Reduction: The Department of Finance and Administration projected a general revenue reduction of approximately $3 million for FY2026 due to the uncapped adjustments.
  • Potential Variability: The fiscal impact could vary significantly based on inflation rates. For instance:
    • At a 4% inflation rate, the total fiscal impact could reach $4.6 million.
    • At 5%, it could be as high as $10.5 million.
    • At 6%, the impact could total $14.8 million.

This variability underscores the potential long-term effects of inflation on tax revenue.

Taxpayer Impact

Taxpayers would benefit from reduced tax liabilities due to increased standard deductions and adjustments to income tax tables during periods of inflation exceeding the current cap. This change would provide more equitable tax relief in line with actual inflation rates.

Implementation Considerations

  • Resources Required: The Arkansas Integrated Revenue System (AIRS) would require updates, with an estimated programming cost of $4,000.
  • Education and Training: Department employees and the tax community would need to be educated on the new provisions to ensure smooth implementation.

Legislative Actions

  • January 13, 2025: The bill was read for the first time and referred to the Committee on Revenue & Taxation.
  • February 19, 2025: The bill was placed on second reading, amended, and reported correctly engrossed.
  • May 5, 2025: The bill ultimately died in the House Committee at Sine Die adjournment.

Conclusion

While HB 1065 aimed to provide significant tax relief by aligning tax adjustments with inflation more accurately, it did not progress past the committee stage. The proposed changes highlighted ongoing discussions about tax policy and inflation's impact on state revenue.

Compiled from official sources — confirm details with the bill’s official record.

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