Tuesday, March 19, 2013

The myth of tax cutting and economic prosperity

Posted By on Tue, Mar 19, 2013 at 10:08 AM

Ernie Dumas this week elaborates on a favorite topic — the inordinate benefit that the wealthy will enjoy from pending Republican tax cut plans, both on regular and capital gains income. It's not fair. It's also not likely to produce the economic miracle Republican leaders envision, if history is a guide.

When Arkansas exempted 30 percent of long-term capital gains from taxation in 1999, effective the next year, and Congress slashed capital gains tax rates in 2001, they were followed by some of the worst job records in modern history, for the state and the nation. On the other hand, when Congress in 1986 required the taxation of capital gains the same as wages and salaries it fueled the big job gains in 1987-89 that became the Reagan economic miracle.

The big Republican justification for tax cuts is that Arkansas is a high-tax state, which keeps business from investing in the state. That is pure baloney. If low taxes stimulated growth and jobs, Arkansas long ago would have been the industrial center of America. For much of its history it had by far the lowest state and local taxes in the country.

As of 2010, we were 47th. That is based on the taxes actually collected per capita by the state and local governments and spent here on services like schools, roads and law enforcement.

But Republicans rely on the helpful Tax Foundation, which shows Arkansas as a high-tax state by using a formula that assigns to Arkansas some of the high taxes collected and spent in Texas, Wyoming, Florida, Tennessee and other states. It says high taxes on minerals, tourism and many businesses in those states actually are passed on to consumer states like Arkansas, which then becomes a high-tax state. I’m not kidding. That’s why the Republicans say we have to cut taxes for our well-to-do and reduce the government’s support of education.

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