Asa tax plan: Giveth and Taketh Away

With Arkansas having a Republican Governor and Republican legislature, Conduit for Action was hopeful 2017 would be the year Arkansas would adopt real tax reform. We were hopeful Arkansas would adopt tax measures that would allow Arkansas businesses to be more competitive with other states.

While the Governor Asa Hutchinson’s 2017 plan would provide tax breaks for some taxpayers it is not a tax reform plan. It is a “Giveth and Taketh Away” plan.

The giveth part would:

  • Provide an income tax break to low income taxpayers (providing up to a $156 benefit for an individual)
  • Exempt military retirement from income tax (Currently military retirement is treated like any other retirement payment and only the first $6,000 is exempt)
  • Reduce the state’s soft-drink syrup tax

The taketh part of the 2017 plan includes:

  • Increasing the tax on the sale of manufactured homes
  • Putting the full sales tax back on candy and soft drinks (currently taxed at the reduced rate for food)
  • Taxing unemployment compensation

A low-income person who gets the maximum benefit from the plan ($156) may come out ahead if they don’t get caught by the new tax increases.

In the case of military exemption.  It is for military retirees and not for all of our veterans. The Governor said he was ending some tax emptions to create this tax exemption. Some claim the exemption will stimulate the economy but that argument is a big stretch. There will be support for honoring military retirees by giving a tax exemption, but the question will be how much additional tax will people be willing to take on to fund the tax exemption.

It is hard to get stirred up about having to pay more tax for candy and soft drinks, since candy and soda is not nutritional and can promote obesity. On the other hand, that sounds a lot like the “Nanny State” thinking of former New York Mayor Michael Bloomberg or First Lady, Michelle Obama.

During his two terms of office, former Governor Mike Beebe consistently reduced the tax on grocery items. Just a few years after reducing tax on groceries, the plan is to start carving out items to be fully taxed again…. giveth and taketh away.

The reduced sales tax paid by purchasers of manufactured homes was given by the legislature several decades ago.

The 2017 giveth and taketh away plan is similar to the Governor’s 2015 plan – just change the name of winners and losers. The 2015 plan gave a small tax benefit to some middle-income taxpayers and took away capital gains tax treatment promised to business by the 2013 legislature. Even after passage of the plan, opposition to the legislature breaking its 2013 promise continued, and before the legislative session ended the legislature restored the capital gains treatment.

Part of the 2017 tax plan is funded by new tax.  The remainder is funded by using a cut from the growth in state revenue.

In the past, many small tax relief packages have been funded by giving back a cut of government growth. This always allows politician to check off a “promise kept” for their next campaign. The problem is the cut for taxpayers is determined based on how much is left over after growing government expenditures.  There is no regular process for evaluating the need for, or the success of, state programs, and this failure basically guarantees government growth and limits the amount of tax relief that will be offered.

Until the state addresses actual tax reform and the need to allow businesses to grow on their own, Arkansas will be stuck with picking winners and losers through corporate welfare, growing government, and bragging on giving a slice of state revenue growth to selected groups.

There is something wrong when Arkansans can’t get meaningful tax relief, yet there are millions of dollars wasted on computer systems that don’t work, millions on grants to friends of legislators, millions given away to favored corporations, and having so much discretionary money in the Governor’s pocket that the Governor can fund new programs out of his own discretionary funds.

Giving away taxpayers’ money to help a private corporation fund a Taekwondo headquarters may earn you a black belt in discretionary spending, but it is not the way to gain the taxpayer’s confidence that tax money is so well spent that government needs to spend more.