Tax plan anarchy | Arkansas Blog

Wednesday, January 13, 2010

Tax plan anarchy

Posted By on Wed, Jan 13, 2010 at 10:57 AM

The D-G today got around to mentioning last week's ballot title approval of a constitutional amendment aimed at repealing most state taxes and replacing them with a much fatter sales tax.

So I've gone ahead and posted Ernest Dumas' column this week which enumerates just a few of the obvioius pitfalls in this terrible idea. For one thing -- and it could be a double-edged sword -- the amendment as written might not really repeal all taxes.

If the amendment were ratified and the courts followed common statutory construction in interpreting it, the amendment would repeal only three or four taxes: personal and corporate income taxes, including income taxes on capital gains, and the real-estate transfer tax. That is because the amendment and the ballot title weirdly follow the sweeping repeal of “all state taxes” with five specific taxes that would be repealed: “The capital gains tax; The corporate tax; Income taxes; Payroll taxes; and The real estate transfer tax.” The state doesn't levy payroll taxes, unless it is talking about the employment security, or unemployment, tax. And what is “the corporate tax”? There are a bunch of corporate taxes. Maybe they want to repeal the little franchise tax but who can say?

Dumas believes the Supreme Court isn't likely to approve an amendment with so many complicated and hidden consequences. But if it did make the ballot and was passed and repealed all legislatively levied taxes as the sponsors say they intend:

Since all businesses of any kind, big or small, would not pay a sales tax on anything — not on the fuel and energy they consume or any equipment or merchandise that they buy for business use — the tax rate paid by individual consumers would have to be high enough to make up for that huge loss of revenue.  The amendment says no services could be taxed either although other parts of the amendment seem to contradict that.

The price of commodities in Arkansas would be so high that people would buy everything they could — cars and appliances, for example, maybe groceries and clothing — across the borders or over the Internet. It would create the biggest black market in the world outside of the Middle East.

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