House cuts taxes: Manufacturers, wealthy big winners | Arkansas Blog

Wednesday, February 16, 2011

House cuts taxes: Manufacturers, wealthy big winners

Posted By on Wed, Feb 16, 2011 at 3:10 PM

The House went on an orgy of tax cutting today, passing three bills that advance to the Senate over opposition from Gov. Mike Beebe, who says the state's budget is too tight to risk the cuts. The biggest beneficiaries were manufacturers, on their utility bills, and the wealthy, who'll get nearly all the benefits of a bill to eliminate the 4.6 percent tax on capital gains on Arkansas property. The capital gains cut survived an effort helped by the Beebe administration to slow its progress.

* Events opened with easy passage of HB 1052 by Rep. Lane Jean to reduce the tax on natural gas and electricity used in manufacturing. This is a $3.8 million cost item. It passed 88-8. Nobody has offered a bill to reduce the tax bite on consumers' utility bills.

* The headliner was HB 1002 by Rep. Ed Garner to cut the capital gains tax on Arkansas property. It had 66 co-sponsors at one point, but 21 signaled a wish to drop off as Gov. Mike Beebe and lobbyists for state institutions, particularly colleges, worked against the bill on account of the expected revenue loss, some $30 million a year when it takes effect, according to state officials. There's been no showing by proponents of any certainty that the tax cut would create any economic benefit, except in the form of a windfall for the tiny percentage of the population that receives nearly all of the benefit from capital gains — the profit on sale of appreciated property.

An effort to amend the bill to drop 21 co-sponsors — which would have required delay of a final vote for at least a day — failed on a 40-55 vote. A couple who wanted to drop off, such as Rep. Tracy Steele, said he wanted further consideration because of widely differing estimates on the bill's impact.

Garner, who disputed DF&A's revenue loss estimate, argued for the bill by saying capital investments create jobs. Indeed, capital can create jobs. But the availability of a capital gains tax break does not necessarily create capital investments — that's the simple point the cheerleaders overlook. The tax rate has a marginal impact most studies show. Labor, raw materials, transportation, education and a raft of other issues amount to the deciding factors in job location, not the elimination of a 4.6 percent marginal tax.

Rep. John Burris argued that there's existing growth in the budget to accommodate even the state's prediction of revenue loss.

Rep. Eddie Cheatham, noting Arkansas's relatively good financial situation, said, "This is a good bill, but not at this time."

Tea Partyer Rep. Jon Hubbard of Jonesboro illustrated the depth of his misinformation by suggesting Arkansas lost a Japanese auto assembly plant to Mississippi because of tax incentives. Money wasn't an issue. But there were indications we lost it because of concerns about the education of the Arkansas workforce. It's a lesson worth remembering every time the tax cutters vote to reduce state spending. Venture capital for high-tech enterprises doesn't go to uneducated states with poor infrastructure.

Tax cutting sentiment prevailed.

The bill passed 53-43-1 present.

* The House also was scheduled to vote on HB 1056 to reduce the income tax burden on lower-income single heads of households with two more more dependents. It passed 93-0. It will cost $3 to $4 million a year.

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