The Republican tax solution - a sales tax or budget devastation | Arkansas Blog

Thursday, August 2, 2012

The Republican tax solution - a sales tax or budget devastation

Posted By on Thu, Aug 2, 2012 at 2:18 PM

An error I made in a Sunday blog post came back to bite the Arkansas Democratic Party today in a way that let the Republican Party throw up some noise to obscure a tax issue that's vital in this election season.

I wrote Sunday, relying on the GOP website, that the Republican platform proposed to end the state income tax and replace it with a sales tax. It turned out, though it took several days to get the final document posted, the platform debate produced an amended plank that called for elimination of the income tax and replacement "with a more equitable method of taxation." No specific offered.

Cooler heads apparently decided that invoking a potential sales tax increase wasn't good politics in a state that already has a 6 percent state sales tax, plus many local taxes. It would take a 15 percent sales tax rate to make up the $3.1 billion that would be lost by ending the income tax.

Fairness is another reason the end of the income tax is a bad idea. Other Republican states, like Kansas, have taken steps to drastically reduce the income tax. It's an enormous windfall for the wealthy.

This spreadsheet on 2010 Arkansas income taxes gives you an idea. About 15,000 people making more than $200,000 a year, would get a combined tax break of almost a HALF-BILLION dollars, more than $30,000 a year each. Any tax makeup would be regressive, almost for certain, or harm services (health care for the poor) that the poorest workers need most.

Alas, the Democratic Party sent out a news release today, linking my Sunday blog post, that said the platform called for a sales tax increase. The release contrasted this with Republican politicans touting a (largely meaningless) sales tax holiday on back-to-school sales. The platform doesn't call for a sales tax increase specifically, as numerous Republicans instantly Twittered, with a few gratutious smears for the lowly tabloid Times. (I had corrected the item days ago and the correct statement of the platform actually appeared in the item linked by the Democrats). My column this week additionally notes that the amendment actually makes the tax proposal worse. It has no specific replacement for lost income, which would mean a devastating blow to state services. If it does turn out a sales tax is necessary to balance the budget, the Republican platform now no longer contains a 2 percent cap on sales tax increases, as the old language did.

And, really, what does an "equitable method" mean if NOT the sales tax? A severance tax? An estate tax? A corporate franchise levy? Not likely.

The sales tax has long been the tax of choice for Republicans, including in the platform language I originally quoted and a proposal for a 3 percent sales tax increase promised by a Fort Smith Republican legislator. It was announced as part of the Republican agenda for 2013 back in April. The flat tax advocated by Mike Huckabee and others has always been built on a sales tax. Lt. Gov. Mark Darr, who styles himself as something of the leader of the party these days, said while campaigning in 2010 that he favored a flat sales tax at state and federal levels, telling the Democrat-Gazette, "To me that puts the taxes in your hands. You can decide how much taxes that you are going to pay by the goods and services that you buy."

In short, though the Republican platform statement on taxes may only reference ending the state income tax, that move would have one of two, and probably both, of these consequences:

1) An enormous cut in the state budget, with devastating impact, first, on the poorest taxpayers.

2) An increase in the sales tax to keep government afloat.

Rep. John Burris told me this week he believed revenue growth would pay for the lost money. Wishful thinking. Nuts actually. You lose $3 billion in income tax. The increase year to year in revenue last year, COUNTING THE INCOME TAX, was $56 million. That's quite a shortfall. In Kansas, Gov. Sam Brownback is making the same pitch about prosperity in economic growth from an enormous Republican-passed income tax cut, but nonpartisan economists say Kansas will need to create 500,000 new jobs almost overnight for that to happen. A drop in the income tax will do that? Not likely. Corporations pay only about 25 percent of the income tax burden in Arkansas now. The relative pittance they'd save is still not a job location decider on a par with workforce qualifications, infrastructure and quality of life. All of which will take a body blow from a loss of $3 billion in income tax revenue. Sure some of that money will be spent here. But a lot will go to the Caymans. It won't begin to offset the economic devastation of the government jobs terminated.

In short: When Republicans say it's not about the sales tax, it's about the sales tax. Their platform cuts taxes for the wealthy and deprives working poor of health care.

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