The history of Ark. tax cuts: All pleasure, little political guilt | Arkansas Blog

Tuesday, January 13, 2015

The history of Ark. tax cuts: All pleasure, little political guilt

Posted By on Tue, Jan 13, 2015 at 9:37 AM

WILL HISTORY REPEAT? Mike Huckabee cut taxes (as Asa Hutchinson proposes to do), on a model drawn up by Jim Guy Tucker. Then he raised them more than any Arkansas governor in history. Nobody but the Club for Growth much noticed. - ARKANSAS BUSINESS
  • Arkansas Business
  • WILL HISTORY REPEAT? Mike Huckabee cut taxes (as Asa Hutchinson proposes to do), on a model drawn up by Jim Guy Tucker. Then he raised them more than any Arkansas governor in history. Nobody but the Club for Growth much noticed.

Ernest Dumas, who's been covering Arkansas governors for five decades, provides historical context for the $100 million income tax cut that new Gov. Asa Hutchinson seems certain to push through a friendly legislature in the opening days of the 2015 legislative session. History repeats, Dumas writes.

They are enduring features of new governors and presidents. They are always popular. They are sometimes improvident. But they rarely become a negative for the politician who proposes them. Read on for an early look at his column for this week's Times:

By Ernest Dumas

You can count this as a defense of Gov. Asa Hutchinson or not, but he will repeat history rather than make it by engineering a tax cut right at the outset.

Tax cuts may look unwise in retrospect and maybe even in advance, but they are always popular at the moment and rarely are they held against a politician, even when they turn sour. As soon as he took office in 1981, Ronald Reagan persuaded Congress to pass a big tax cut, truly mammoth for high incomes, which was followed by skyrocketing national deficits and a recession that drove unemployment into double digits for 10 straight months. Reagan spent the rest of his presidency raising taxes—five of the 11 major tax hikes of the past 50 years were his—but 30 years later that tax cut is still celebrated as his legacy and the high-water mark of modern conservatism. The rest is forgotten.

George W. Bush was not as lucky but his lengthening unpopularity owes more to two wars, two recessions and eight years of economic malaise than to the serial tax cuts for high earners that began his presidency, whatever they contributed to the cataclysms on his watch.

But this began as an Arkansas history lesson. We need not look at sister states where recent governors have started their reigns by cutting taxes, although Hutchinson has been warned about the experience of Kansas’s Sam Brownback, who slashed taxes and promised a golden age four years ago only to preside over his state’s fiscal collapse.

Hutchinson is cutting less than Brownback—a modest $100 million directed at middle-income earners—and promising less, although he predicts a spurt of growth when Arkansas’s income tax rates become “competitive” and people rush here to take advantage. One benefit of tax cuts, at least when, like Hutchinson’s, they are aimed at middle-income people is that they act as a stimulus, putting a little more money into the pockets of working people who will create demand for more production somewhere. The stimulus effect will be small because, owing to lower deductions, part of everyone’s tax cut will just go to the IRS.

Hutchinson’s two immediate predecessors, Mike Beebe and Mike Huckabee, began by cutting taxes. Beebe promised during his eight years to phase out all sales taxes on groceries, except the one for sportsmen that Huckabee installed safely in the Constitution. Beebe was able to do it without serious harm to the budget because President Obama’s 2009 stimulus act and 2010 health law steered well over a billion dollars into the state treasury, forestalling harsh budget cuts and handing the governor little surpluses for five years.

When Huckabee claimed in his 2008 presidential campaign that he was the first Arkansas governor ever to cut taxes, it may have been the biggest fiction he ever uttered. Few Arkansas governors have failed to find some tax to cut. When he said he had to drive a recalcitrant Democratic legislature to cut taxes in his first months in 1997, Huckabee was off 180 degrees. Gov. Jim Guy Tucker drafted tax cuts benefiting middle-income and elderly taxpayers before handing the reins to Huckabee and every Democrat in the legislature signed Tucker’s bill as sponsors. Huckabee signed it into law after his own plan, to mail people a small rebate, got no support even from Republicans.

You may remember that Huckabee then proceeded to raise more taxes than any governor in Arkansas history: every time in his 8 ½ years that there was a slight budget pinch. If you’re keeping tabs: sales taxes three times, individual and corporate income taxes once, nursing-home-resident taxes once, motor-fuel taxes once, the corporate franchise tax once, tobacco taxes five times, alcohol taxes twice and drivers’ licenses once. Let’s not count fee increases.

His tax record seems never to have hurt Huckabee in Arkansas—he still polls well in his native state—but it cost him fatally with big business, a key constituency of the national Republican Party. The Club for Growth slammed him again last week hours after he announced he was looking at the 2016 presidential race.

Let’s skip all the other gubernatorial tax cutters except my favorite, Gov. J. Marion Futrell, who was elected in 1932 as the Depression and a historic drought was crushing Arkansas. Embracing the current Republican doctrine of cutting spending and taxes in hard times, Futrell quickly slashed spending by 51.6 percent and the taxes that supported it.

The state had shouldered the debt of road districts after the great flood of 1927 had destroyed more than a third of the state’s roads, but Futrell and the legislature cut vehicle taxes, which paid for roadbuilding and the debt. Arkansas soon defaulted on its debt—the only state in the union to do so—and couldn’t pay teachers or other school costs, or match any of the federal relief for the state’s starving people. Bondholders sued the state and won. Futrell called the legislature into special session to raise gasoline taxes but also waived property taxes on the well to do who hadn’t paid them.

Still, voters were happy with Futrell and re-elected him handily in 1934. But the Roosevelt administration had enough and announced that until Arkansas did something to help, Washington would no longer pay Arkansas teachers and other public employees or continue any of the relief that was keeping the desperate people of the state alive. Fearing riots, Futrell pleaded with legislators to raise taxes and they complied by levying the first sales tax (2 percent), legalizing liquor and racing and taxing them. Roosevelt turned the spigot back on and Futrell quit with his popularity high.

Whatever the convulsions from his tax cut, Governor Hutchinson will fade the heat, too—if he persuades the legislature to avert catastrophe by keeping 250,000 Arkansans insured under Obamacare and the federal money flowing.

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