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Monday, November 28, 2011

Davy Carter sets hearings on tax reform

Posted By on Mon, Nov 28, 2011 at 10:25 AM

TAX REFORM TALK: From Rep. Davy Carter.
  • TAX REFORM TALK: From Rep. Davy Carter.
Roby Brock's Talk Business has a good report on Republican Rep. Davy Carter's plan, as chair of the House Revenue and Tax Committee, to hold hearings next year on income tax reform in Arkansas.

Unlike many others in his party, Carter understands sensible reform isn't all about cutting. He'd like to reshape income tax brackets in a "revenue neutral" way.

That can't be done through income tax brackets alone, as a practical political matter. It would mean a new higher bracket for the wealthy or dramatic shifting of the overall income tax burden to higher income people. That's not what Carter has in mind, however.

Carter is nonetheless correct that the state graduated income tax is out of date with its inception in the early 1970s. The top marginal rate, 7 percent, kicks in around $32,000. That's not much beyond the federal poverty level for a family of four with a single wage-earner.

So if income tax brackets are made more progressive — meaning lower for the vast majority of Arkansans — somebody has to pay more. Or else schools, prisons and nursing homes would suffer an enormous hit.

Carter's solution is to review the state's many sales tax exemptions. Many have been down this road. All have failed. That's because the biggest sums of money saved by exemptions are saved by businesses with well-paid lobbyists intent on hanging onto preferential treatment — think industrial consumers of electricity; think manufacturers; think media, with their advertising exemption.

It's a worthy idea. But, inevitably, income tax reform that benefits the greatest number of citizens, means some people are going to have to pay more. Carter, at least, isn't following the leadership of congressional Republicans who think the solution is to directly increase taxes on the poor and middle class so as to continue preferential tax treatment for the wealthy. Carter's biggest problem with equity will be dealing with his party's perennial push for an even lower tax on capital gains. Something like 80 to 90 percent of the income tax benefits on this tax break go to the wealthiest taxpayers. To make up that loss inevitably means a regressive sales tax increase or some other punishing tax burden on poorer people.

Good luck with all that, Rep. Carter.

Here are some other ideas:

* Restore an estate tax in Arkansas that's a percentage of the federal levy. It only affects people with millions in assets.

* Add a new 8 percent income tax bracket for taxable (after deductions) income of, say, more than $200,000. And index it.

* End the sales tax exemption legislated for art purchases by Alice Walton's Crystal Bridges Museum of American Art, an exemption no other museum in Arkansas enjoys. Shouldn't all museums have it, too? It saved Crystal Bridges — and cost the state and local governments — $30 to $40 million, by rough estimate. Sounds like a lot of money, unless you're a billionaire.

More where those came from.

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