Arkansas Democrats and Republicans are squabbling over taxes, which is nothing new. The dilemma for voters as the general election nears to figure out what the candidates are saying and what it might mean to them.
Last week, the Arkansasas Republican Party accused Democratic officials of lying in statements about what GOP lawmakers want to do about taxation in the coming state legislative session.
The Republicans left themselves wide open for such charges in their state platform for 2012-14. Among its more than 7,600 words are these: "Replace the State Income Tax with a more equitable method of taxation."
The question is what they’d suggest would be a "more equitable method of taxation," and the platform offers no clues. Instead, its next three provisions change the subject, introducing other issues with the introductory phrase "in the interim."
One of those provisions says that the party "is opposed to income tax increases and corporate income taxes because they penalize creative economic activity." Therefore, the party would support legislation that would eliminate the state income tax, which, it contends, would increase the attraction of Arkansas as a "retiree friendly" state. That, in turn, the provision says, would result in an increase in sales and property taxes, thus "making this a revenue-neutral change."
The other two provisions deal with deductions, which would be pointless if the income tax were eliminated.
The last two provisions advocate a permanent repeal of death (estate) taxes and dedicating all state General Improvement Funds to critical statewide needs, rather than "pork barrel projects."
So what happens when we get past "the interim."
Democratic officials contend the Republicans would want to replace the income tax by raising the state sales tax, which is what they pushed in their 2010 platform (to a maximum increase of 2 percent). Being less specific, it was decided this time around, is a safer course.
That 2010 platform, by the way, also called for eliminating the federal personal income tax, replacing it with "a more efficient tax code." That provision was changed this year to eliminating the corporate income tax."
The notion that abolishing the state income tax would be "revenue neutral" because of all the retirees who would be moving to the state is ludicrous. For one thing the state gets nothing from property taxes, and retired citizens aren’t big consumers so they don’t tend to increase sales tax collections.
Therefore, the loss of state revenue would be dramatic if the income tax were abolished without making it up through some other form of taxation, and it stands to reason that raising the sales tax would be the answer. That has been a favorite strategy of anti-income tax opponents for years.
In Arkansas it’s the easiest tax to raise, requiring the approval of a simple majority of both houses of the Legislature. Almost all others, including the income tax, require a three-fourths majority of both houses. To be fair, the Republican platform calls for making that the standard for all tax increases.
Democrats called attention to two proposals of Republican state legislators. Last spring Rep. Denny Altes, R-Fort Smith, told the Arkansas News Bureau he had drafted a bill to lower the state income tax and increase the state sales tax. That’s not in the party’s platform, though.
Another proposal, offered by Rep. Charlie Collins, R-Fayetteville, would eliminate two of the six tax brackets from the state income tax schedule. At present the schedule has a maximum rate of 7 percent for people with annual incomes of $33,200 or more. Collins would lower that to 6 percent while gradually raising the income level.
He says he would use the state’s 2012 revenue surplus to make up the difference, but that works only for one year and couldn’t be effective until next year anyway.
Besides, that doesn’t really replace the state income tax.
Individual candidates don’t have to follow their party’s platform, but the issue gives voters a good question for all legislative candidates. Ask them whether they want to replace the state income tax and, more importantly, how.
The state Democratic Party platform isn’t available yet. Its adoption will be considered this weekend at the state convention. But you can bet abolishing the state income tax won’t be included.
More likely, the Democrats will call for a further reduction in the state sales tax on groceries. Under the administration of Gov. Mike Beebe that rate has been reduced to 1.5 percent, and he’d like to get it off the books before he leaves office in two years.
The Republican platform doesn’t say anything about that.
If our political leaders really want to make the state income tax more equitable, what they could do is stretch the brackets out further. Arkansas’ highest rate is 7 percent, high compared to other states in the region, and it applies to a relatively low annual income. All of the income levels could be raised, and that would preserve the progressive nature of the tax.
Our state sales tax, which isn’t progressive, is already too high, especially when you consider that it has become the only way cities and counties can support their services.
Roy Ockert is editor emeritus of The Jonesboro Sun. He may be reached by e-mail at email@example.com.