Legislature's 'wrong-headed' approach to tax cuts | Arkansas Blog

Friday, April 19, 2013

Legislature's 'wrong-headed' approach to tax cuts

Posted By on Fri, Apr 19, 2013 at 1:05 PM

It's all over but the gold-counting for the Arkansas legislature's orgy of tax cuts for the rich and businesses.

Just listing them all takes so much space that the daily Arkansas Democrat-Gazette, which is devoting an admirable and masssive amount of staff and space to legislative coverage, can't dig very deeply into pro and con arguments when they're made or some of the factual elements that underlie major decisions such as tax cuts.

In that vein, after the fact, comes the Arkansas Citizens First Congress. The video above features Jim Metzger, an economist who's studied state revenue for 30 years, and who testified about smart tax policy. Some cuts help the economy. Some don't. Capital gains tax cuts, for example, just tend to swell the pocketbooks of the rich, or their investment portfolios. Tax cuts on lower and middle-income workers tend to get pumped right back into the economy.

This legislature had some stark choices. Rep. Warwick Sabin had a bill targeting income tax relief and bracket fairness that would have benefitted middle income workers. Rep. Fred Love wanted to help people who qualify with an earned income tax credit, essentially a small rebate of payroll taxes that would go immediately back into the economy as consumer spending.

The legislature chose to cut income taxes across the board, a cut that will produce more gains for the wealthy. The capital gains tax cut is extraordinarily favorable to the wealthy, particularly in the form House Speaker Davy Carter wrote it with a total exemption for $5 million-plus gains. Manufacturers got a big sales tax cut on utilities. A variety of other businesses get lesser tax cuts.

The Arkansas First Congress notes that the cuts are unfair, even immoral, with about half the benefits flowing to a tiny percentage of high-income people. They favor the top 1 percent, who pay only 6 cents on every dollar of income in taxes, versus middle and low income workers who pay 12 cents of every dollar earned in taxes.

Its statement follows:

The Arkansas Citizens First Congress today expresses our deep disappointment that the tax package being approved by the Arkansas Legislature will almost exclusively benefit wealthy Arkansans. It continues to leave middle and low income Arkansans exposed to the highest tax rates in the state and wondering where their share of tax relief is.

The Arkansas legislature missed an historic opportunity to address the fundamental problem of an upside down tax code that taxes our middle and low income families at twice the tax rate that we tax our wealthiest. Middle and low income families pay 12 cents of every dollar earned in state and local taxes, while the top 1% of Arkansans, who make more than $300,000 a year, pay only 6 cents on every dollar earned.

Not only is this system unfair, unjust and immoral: it is ineffective. The evidence shows that economies grow most effectively from the middle and bottom out, not from the top down. Middle and low income families invest tax savings straight back into their local economies, creating jobs and building local wealth.

Instead of addressing the problem, the package of tax bills that have passed through the Arkansas Legislature will make this significantly worse. Over half of the benefits of the tax cuts will flow to the state's top 5% of income earners. The income tax cut, HB1585, and the capital gains tax cut on investment profits, HB1966, were the worst of several one-sided bills.

The Legislature had better options, including a broader-based income tax cut weighted to middle and low income workers proposed by Rep. Sabin as well as an earned income tax credit to help the working poor proposed by Rep. Love. The Legislature rejected these bills that would have been more fair and better for the economy and instead passed a tax package that heavily favors the super rich.

We were encouraged by late amendments that added a modicum of middle and low income relief. These amendments were far too small to make the overall package better, saving middle class families hundreds of dollars while benefitting the wealthiest with millions in tax savings. But the late amendments do seem to recognize that Arkansas has a tax fairness problem. We hope that the Legislature will convene an interim study on tax fairness before the next legislative session so the people of Arkansas can have an open and informed discussion about tax policy, tax fairness and economic development.

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