My old boss, Lt. Governor Win Rockefeller, used to say, “The only time a tax is pure is when it’s first passed. After that, everything that’s done to it is meant either to benefit or punish somebody.”
If elected governor, Rockefeller wanted to appoint a comprehensive study group that would comb through the state’s entire tax code — sales tax, income tax, everything — propose a flatter system, and then submit the idea to the voters for an up or down vote.
He did not get that chance.
But next year, state Rep. Davy Carter, R-Cabot, chairman of the House Committee on Revenue and Taxation, hopes to do part of what Rockefeller proposed.
Carter wants to hold hearings on all of the state’s 121 sales tax exclusions and exemptions that, combined, reduce tax revenues by considerably more than $1 billion a year. That would take a while, so any changes would wait until the 2013 session.
Independent reporting for Pine Bluff & Jefferson County since 1879.
Carter hopes that ending some of the exemptions would allow the Legislature to lower state individual income taxes, which are high here. Arkansans in the top bracket pay 7 percent, the 13th highest in the country according to the nonprofit Tax Foundation, and they reach that bracket making only $32,700 per year. Workers making only $19,600 live in the second highest tax bracket, 6 percent.
That’s unfair, Carter says, and it puts the state at a disadvantage when competing with adjacent states, all of which have lower top income tax rates. Nine states, including Texas, Tennessee and Florida, don’t even have an income tax, though they raise their money in other ways.
The exemptions have been added to the code through the years like ornaments on a Christmas tree based on whomever had political clout or was able to capture the attention of a sympathetic legislator or two.
They range from the major to the miniscule. Gasoline and diesel have been exempted since 1941, the year the Arkansas sales tax was established. That’s by far the biggest exemption, reducing state government revenues by $332 million in 2008, according to a rough estimate by the Department of Finance and Administration.
On the other extreme, an exemption for sales of twine used in the production of tomatoes, passed in 1975, reduced tax revenues by $160 that year.
The second biggest exemption, the 3 percent reduction in the sales tax on food that was passed in 2007, lowered annual state revenues by an estimated $118 million in 2008. That exemption was expanded to 4.5 percent this year.
Twenty-four nonprofits benefit from exemptions, including the Boys’ and Girls’ Clubs of America and the Poets Roundtable of Arkansas. So does the newspaper you are reading, since 1941.
Carter told me he is “not naive enough to think that this will be an easy process,” which is one of the year’s top 10 political understatements. The majority of the tax breaks are related to basics of life — food and fuel. Beneficiaries enjoy receiving them, especially when they have done so for more than 70 years. It’s a safe bet that most if not all of these hearings will attract them and their lobbyists to the state Capitol like flies are attracted to honey. Heck hath no fury like a horde of politically awakened poets.
One other thing that affects the dynamic: Carter’s Revenue and Tax Committee is one of the few legislative committees in Arkansas history with more Republicans than Democrats. A lot of these Republicans came to Little Rock to reform the system and will be receptive to ending these tax breaks in order to lower income tax rates.
On the other hand, those lobbyists can be persuasive, no matter one’s political party. Anyway, whatever the House passes would have to get through the Senate, where the lobbyists who failed to protect their clients in Carter’s committee would be waiting to redeem themselves.
Carter is an attorney, so he’s approaching the issue as if this were a court case and he were a juror. He’s waiting until hearing all the evidence before targeting any particular exemptions. It’s possible, he says, that all are needed and all of this will come to nothing. But regardless, he says legislators have a duty to review them periodically.
I agree and, I’m certain, so would Rockefeller.
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Steve Brawner is an independent journalist in Arkansas.