Why the governor can propose a tax cut
You know what Benjamin Franklin said about nothing in this world being certain except death and taxes? In Arkansas come legislative session time, you probably could add “tax cut proposals” to the list.
Gov. Asa Hutchinson has led the Legislature in cutting income taxes this past three sessions, and he’s announced his proposals for the upcoming one. As a result of legislation passed in 2019, the income tax rate for the highest bracket will fall from 6.9% to 5.9%. He wants to reduce it further to 4.9% for new Arkansas residents for five years.
He also wants to reduce the sales tax on used vehicles from 6.5% to 3.5% for those costing between $4,000 and $10,000. There is no tax for vehicles sold for less than $4,000.
That second one seems like a fair and commonsense proposal. People paying for a vehicle that price are just trying to get a dependable ride to work or to school.
The first proposal? I don’t see it passing.
The logic behind the proposal is to help the state attract technical and manufacturing talent and retirees. Moreover, Hutchinson told the Arkansas State Chamber of Commerce that the tax cut would set a benchmark that would help the state lower that top rate to 4.9% for everyone.
But I don’t know how legislators are supposed to tell their plumber who has paid taxes in Arkansas for 40 years that his tax rate will be higher than the rate paid by some 20-something out-of-stater wearing shorts and sandals who moves here to work at corporate headquarters in Bentonville.
The governor has passed most of what he’s really wanted to pass since he came into office in 2015, including some that were tough sells. Does he really want to pass this? We’ll see if he does, and if he can.
It should be noted that these proposed tax cuts are occurring alongside recent tax increases. In 2019, legislators under the governor’s leadership increased gasoline and diesel taxes to pay for roads, and they also referred to voters a constitutional amendment enacting a permanent half-cent sales tax, also for roadways. That amendment was approved by 55% of the voters earlier this month.
One way of looking at this is that we’re cutting the taxes that go into the big pot while increasing the taxes that are targeted toward one particular need.
The governor is able to ask for tax cuts because the state is running a $240 million surplus, which would seem to be a remarkable occurrence during a pandemic. Legislators will offer their own tax cut proposals.
Let’s give credit where it’s due in that Arkansas’ state government does a pretty good job of balancing its budget — much better, certainly, than the debt-ridden federal government does.
But let’s also acknowledge that the debt-ridden federal government has made the state surplus possible. Were it not for the billions of dollars in borrowed federal dollars coming to Arkansas during this year’s pandemic, we’d be in a serious recession if not a depression and a budgetary hole.
Even before the pandemic, Arkansas was already accepting more than its fair share from Uncle Sam. Like most states, it’s a “recipient state,” which means it gets more money from the federal government than it pays in taxes. A few states including New York and New Jersey are “donor states.”
An example is Arkansas’ use of Obamacare federal dollars to expand the state’s Medicaid population. About a quarter million Arkansans have health insurance because of it. Most of Arkansas’ neighboring states said no to that money, although Oklahoma and Missouri changed their minds this year.
I don’t blame Arkansas officials for taking the federal money, or for proposing tax cuts. But at least we should understand the math. We’re able to cut taxes in Arkansas because the federal government is borrowing from future generations without their permission, which is otherwise known as stealing.
That’s an issue for elected officials in Washington, D.C., to address. As for this upcoming state legislative session, I’m certain that Arkansans’ taxes will be cut, and strongly suspect out-of-state newcomers’ won’t be cut more.
Steve Brawner is a syndicated columnist in Arkansas. Email him at email@example.com. Follow him on Twitter at @stevebrawner.