Tuesday, November 29, 2016

Same old song: Tax cuts will make Arkansas boom

Posted By on Tue, Nov 29, 2016 at 6:21 AM

click to enlarge AT THE END OF THE ROAD: Faux economics won't take us anywhere.
  • AT THE END OF THE ROAD: Faux economics won't take us anywhere.

Embracing data cooked up by the Koch brothers-funded Arkansas Center for Research in Economics at the University of Central Arkansas, the state legislature will once again proclaim that if you cut rich folks' taxes, Arkansas will turn into California's biggest competitor for jobs. Will legislators heed Ernest Dumas' explanation of why this merry-go-round of phony economics has never produced any benefits except to the well-to-do, or use the "Road Map" based on the Tax Foundation? Will self-interest rule the day? You know the answer to that.

With the legislature assembling soon to tackle tax and spending issues, the old notion of corporate and personal income tax cuts as the magic bullet for a poor state arrived right on time the other day at the Capitol, as it has for the past 50 years. Economic salvation is always based on the studies of the Tax Policy Foundation, a "think tank" organized right before World War II by America's largest corporations to promote tax and regulatory policies favorable to big business and its owners and executives.
Where is the business boom already wrought by the tax cuts the legislature has put in place so far? Why the problem is, the Tax Foundation says, that Arkansas is still  a high tax state. That does not mean it collects a lot in taxes. No, the Tax Foundation considers a state that has a graduated income tax a high-tax state. Only a state that levies no income taxes or has a flat tax rate is considered a low-tax state by the Tax Foundation. So it compares Arkansas's economy to low-tax Alaska — but wait: Alaska collects sky-high receipts, Dumas explains, from taxes on oil and gas production.

Ah, just wait until 2017. Arkansas will rocket to the top of every company's list of desired places to locate. Never mind the other factors, like proximity to markets, a skilled workforce, policies of non-discrimination, etc., etc.

The column is on the jump.
Fake economics

Fake news is a new phenomenon in the world of politics and policy, but hokey economic scholarship has been around as long as Form 1040 and is about as reliable as the news hoaxes that enlivened the presidential campaign.

With the legislature assembling soon to tackle tax and spending issues, the old notion of corporate and personal income tax cuts as the magic bullet for a poor state arrived right on time the other day at the Capitol, as it has for the past 50 years. Economic salvation is always based on the studies of the Tax Policy Foundation, a "think tank" organized right before World War II by America's largest corporations to promote tax and regulatory policies favorable to big business and its owners and executives.

This time, the local purveyor of the scheme is the 2-year-old Arkansas Center for Research in Economics at the University of Central Arkansas's College of Business. Its professors and researchers are funded by the Koch brothers (2016 net worth $82 billion, Forbes) and perhaps other right-wing philanthropists. Americans for Prosperity, the Koch brothers' advocacy front, issued a release praising the center's study, "Arkansas: A Road Map for Tax Reform," when the professors presented it to Republican legislators, who are hungry for expert support for their cherished goal of reducing taxes on big businesses and the well-to-do.

The academicians quizzed rank-and-file Arkansans, studied the tax rates, read the Tax Policy Foundation's annual reports and concluded that Arkansas was an economic wasteland because its income tax and taxes on manufacturers gave it one of the worst business climates in America. Lower those taxes, eliminate the little corporate franchise tax and then raise property and sales taxes on ordinary workers to offset the loss of tax receipts, they said, and industry will fight to get to Arkansas and hire people. Never again, they said, will Arkansas have to spend hundreds of millions to bribe a steel mill and a Chinese paper maker to come to Arkansas.

That made perfect sense to lawmakers and Governor Hutchinson, who want to get another tax cut under their belts before the next election. But you are probably dubious, and you should be. It is all based on phony numbers, hokey analysis and economy theories that fly in the face of most economic scholarship except that of the Tax Foundation, Americans for Prosperity and their sponsors.

First, let's get one small issue out of the way. The UCA economists agreed that the state needed tax receipts to pay for desirable things like highways and UCA, so the cuts in individual income taxes and sales taxes paid by manufacturing companies needed to be offset by hiking property taxes on your homes and businesses and by raising the sales tax and expanding it to cover services like your doctor visit, hairdresser, barber and dry cleaner. The legislature can do all that quickly and by spring Arkansas will become the promised land for corporations and individuals.

Well, our constitution prohibits the legislature and governor from raising property taxes, and you can't find five legislators who will vote to tax services. Gov. Winthrop Rockefeller found exactly one in 1969, when he tried desperately to raise taxes to improve the civilization of his adopted state.

The professors' report was based on the Tax Foundation's 2016 business climate index, which purports to record all the tax collections of each state and rank them from 1 to 50 based on its own perverse formula, not on taxes the states actually collected. The Tax Foundation considers a high-tax state one that has a graduated personal income tax and a low-tax state one having no income tax or a flat one. Texas and Alaska are low-tax states because they have no income tax but reap huge sums from stratospheric tax rates on oil and gas production.

Arkansas ranks 38th and the professors said their elixir would bring it to promised-land status next year. Next fall there will be jobs galore. The states that industry and individuals are supposed to be fleeing to are the best 10 tax climates: Wyoming, South Dakota, Alaska, Florida, Nevada, Montana, New Hampshire, Indiana, Utah and Oregon. Wait ... only one, New Hampshire, has a lower jobless rate than Arkansas. Only one, Florida, has more headquartered Fortune 500 companies than poor Arkansas.

Booming states like California and Maryland are at the bottom of the Tax Foundation's business climate index owing to their high graduated income taxes. The comparisons get more absurd.

The bedrock assumption in the professors' and the Tax Foundation's reports is that low taxes and cutting taxes produce growth and that the opposites always produce stagnation.
You don't have to be a scholar but only a casual observer to see the foolishness of the theory. Big tax cuts at both the national and Arkansas levels the past 40 years have nearly always been followed by recessions and stagnation while modest tax increases have usually been followed by growth. Go figure.

The indisputable fact is that state and local taxes are far down the list of considerations for job-creating investment — behind a skilled or educated work force, proximity to markets, raw materials and suppliers, climate, transportation infrastructure, affordable and reliable energy and, yes, things like the levels of bigotry and acceptance.

The Arkansas legislature will buy the professors' theories because that is what they long to hear. Except the part about taxing services and property.


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