Arkansas and West Virginia, yes | Arkansas Blog

Monday, January 24, 2011

Arkansas and West Virginia, yes

Posted By on Mon, Jan 24, 2011 at 2:55 PM

Citizens for Tax Justice, a liberal think tank, says that Arkansas and West Virginia are getting it right when it comes to tax cuts. (Although maybe they could be a little righter still.) CTJ notes that governors in some states propose to cut taxes on businesses and the wealthy as a way to accelerate economic recovery, but:

"The Governors of West Virginia and Arkansas have arrived at an entirely different tax-cutting proposal: reducing the sales tax on groceries. Like lawmakers who support business tax cuts, Governors Tomblin and Beebe believe their brand of tax cuts will circulate quickly throughout the economy, providing necessary relief to the taxpaying public while stimulating the economy.

"Governor Mike Beebe of Arkansas wants to cut the sales tax on groceries by a half-cent and has said it is the only tax cut he will consider this year. In West Virginia, Governor Earl Ray Tomblin wants to reduce the grocery sales tax from 3 to 2 cents and would ultimately like to see it eliminated entirely.

"While the proposals to cut the sales tax on groceries are a welcome development compared to proposed tax cuts for businesses and the wealthy, there are still two problems with them.

First, states need money, so any tax cut needs to be made up. Second, there might be better ways to target working families. Read on for more.

"First and foremost, states are in dire need of revenue this year as they face the most significant budget challenge yet since the start of the recession. Every dollar lost to a tax cut will have to be made up by an even deeper cut in spending.

"Second, reducing the sales tax on groceries is not the most targeted approach available to state leaders looking to support working families. The poorest 40 percent of taxpayers typically receive only about 25 percent of the benefit from exempting groceries. The rest goes to wealthier taxpayers who can more easily afford to pay the sales tax on groceries.

"Enacting or increasing a refundable state Earned Income Tax Credit (EITC) or other low-income refundable credit would be a more affordable and better targeted alternative to ensure that tax cuts reach low- and middle-income working families. Tax cuts that directly benefit low-wage workers are especially beneficial to the general economy because low-wage workers immediately spend their refunds out of necessity. By pumping the money back into the economy, the tax cut goes further in stimulating the economy than tax cuts for the wealthy or businesses.

"Instead of pursuing tax cuts for businesses and wealthy individuals, state lawmakers should be working to alleviate hardship on the most vulnerable. Indeed, the governors in West Virginia and Arkansas may end up being much more efficient at helping their state economies rebound than the 'business friendly' governors in Wisconsin and Iowa."

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