Index Arkansas income tax brackets by the statutory CPI-U COLA, capped at 3% #9638

Arkansas indexes its income tax brackets by a CPI-U cost-of-living adjustment capped at 3%. PolicyEngine uprates them by gov.irs.uprating, the IRS chained-CPI index, with no cap. This affects every projected Arkansas bracket bound: gov.states.ar.tax.income.rates.main.rate, and after #9629 also rates.main.high_income.{threshold, rate, bracket_adjustment}.

The statute

A.C.A. § 26-51-201(d)(2), unchanged since Act 1459 of 2013, § 2:

For purposes of subdivision (d)(1) of this section, the cost-of-living adjustment for a calendar year is the percentage, if any, by which the CPI for the current calendar year exceeds the CPI for the preceding calendar year, not to exceed three percent (3%). The CPI for any calendar year is the average of the Consumer Price Index as of the close of the twelve-month period ending on August 31 of such calendar year. "Consumer Price Index" means the last Consumer Price Index for All Urban Consumers published by the United States Department of Labor.

What PolicyEngine uses

gov.irs.uprating for tax year Y is the average chained CPI-U from August Y−2 through July Y−1 (get_irs_cpi in policyengine_us/parameters/uprating_extensions.py). It has no 3% cap.

Evidence that DFA uses unadjusted CPI-U, September–August

The 2025 Indexed Tax Brackets card moved the high-income threshold from $92,300 to $94,700. With rounding to the nearest $100, that needs a factor in [1.02546, 1.02654). Candidate factors for 2025:

The statutory COLA against gov.irs.uprating, computed from PolicyEngine's gov.bls.cpi.cpi_u:

October 2025 CPI-U is missing from BLS's data, so the 2026 window has 11 months. Either way, the cap binds.

Proposed fix

Add an Arkansas COLA index to uprating_extensions.py, like the Oregon Kids' Credit's get_or_ctc_cola:

• chain min(1.03, max(1, ratio)) each year, where ratio is the Sep–Aug CPI-U average over the prior year's;
• use unadjusted CPI-U where it is observed, and CBO's CPI-U projections after that;
• handle the missing October 2025 month.

Then point the Arkansas bracket parameters' uprating at it. #9621 is reworking the tax-year CPI projection series, so build this on top of it.