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Millions of ways to solve the state's money problems

Governor Huckabee wants people to pay $225 million a year in new state taxes to preserve a paltry level of state services, and the state Supreme Court has all but ordered the legislature to raise taxes even more in order that Arkansas children can get a minimally good education.

Those political conditions - a political or a legal mandate, or both, to increase taxes - have occurred rarely in the past 70 years, and all but one time they have meant one thing: a sales tax increase.

Not since 1935 has the legislature faced such daunting pressure to raise taxes. The legislature levied the sales tax for the first time in that grim Depression year after President Franklin D. Roosevelt lost patience with Arkansas and cut off all federal aid to the state, which had reduced its own taxes for education while siphoning off federal relief dollars to the state to pay school teachers.

To open the federal spigot again, Arkansas was forced to raise taxes for education and to shoulder some of the cost of relief for the unemployed as all the other states were already doing. The legislature that spring levied a 2 percent tax on the sale of commodities, except lard, flour and a few other food staples. The sales tax has been the packhorse of state government ever since.

If the General Assembly can be persuaded to raise taxes at all in 2003 it likely will be some form of the sales tax, either raising the current rate of 5 1/8 cents on the dollar or broadening the tax to a few things that are exempt now, including perhaps a few services.

Even that prospect is chancy. The legislature has raised taxes for the general operations of government, as opposed to special programs like highways, only under powerful goading by governors. Legislators ordinarily have to be blandished and wheedled into voting for taxes. Huckabee has all but declared war on legislators, a formula for raising taxes that has not yet been tried.

Nine days after he won re-election, Governor Huckabee proposed raising the state sales tax by 5/8ths of a cent on a dollar. It would raise about $225 million next year, which would be used mainly to open new prisons and drug courts, shore up Medicaid and increase funding for schools slightly. But he said he was not firmly wedded to the tax and was amenable to other ways the legislature might find to fund services.

Huckabee proposed the tax increase before the Supreme Court declared schools unconstitutional because they did not provide children an equal and quality education. The Supreme Court did not fix an amount that the legislature should raise to satisfy the constitutional injunction, but outside estimates have exceeded $500 million.

The sales tax is the tax of first and last resort for three reasons. It raises a lot of money, $400 million next year for a single penny increase; it is nearly invisible because it is paid in dimes and quarters every day; and the state Constitution makes nearly every other source of taxation practically untouchable.

The same year that Gov. J. Marion Futrell and the legislature were forgiving local school taxes and ducking any role in providing relief to its destitute people they put a constitutional amendment on the ballot that was supposed to make it nearly impossible to raise taxes ever again. The amendment, ratified in 1934, said no tax in existence then could be raised except by a statewide election or by the votes of three-fourths of the members of each house of the legislature. But no sooner was it ratified than the crisis with the Roosevelt administration forced Futrell and the legislature to raise taxes or else virtually secede from the union.



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