Fort Smith group seeks flat tax code for Arkansas

Fort Smith-based Arkansas Progressive Group plans to convince Arkansans they should approve a new state constitutional amendment to replace the “thousands” of statewide taxes and tax exemptions with a flat tax.

The group on Oct. 7 filed a ballot initiative with the Arkansas Attorney General’s office to seek approval of the language. With approval, the group would gear up to collect more than 77,000 voter signatures to get the referendum placed on the November 2010 general election ballot.

Brandon Woodrome, a housing developer in Fort Smith and unsuccessful candidate in the 2008 Republican primary for the District 64 Arkansas House seat, and Jett Harris, also a Fort Smith-based housing developer, are the only listed members of the group. Woodrome said they are working to gather a board, and have several “strong” commitments from people who support the idea of a simple, flat tax.

However, Woodrome acknowledged the effort will be a struggle.

“This bill is harmful to politicians and political insiders and it takes away their ability to manipulate people through the tax code. … We’re repealing thousands of pages of state tax code and replacing it with something like a page and a half,” Woodrome said. (This link will direct you to the ballot item recently filed by Arkansas Progressive Growth with the Arkansas Attorney General’s office.)

The “AR OneTax” would not cut government revenue, but would merely shift all tax collections to an easily identified tax structure and would remove the “thousands of hidden taxes Arkansans pay each day but don’t know about,” Woodrome explained.

Part of that tax shift would include reversing recent cuts to the sales tax on grocery items. Gov. Mike Beebe has made ground on making good on a promise to reduce the state’s 6% tax on essential food items. The tax has been reduced from 6% to 2% during the previous two legislative sessions.

But Woodrome said the AR OneTax proposal would create a “prebate” mechanism by which all households in Arkansas would receive an annual payment to cover food purchases and other essential services. The amount would be determined by an as-of-yet undetermined formula created by the Arkansas Department of Human Services under instruction from a process approved by the Arkansas Legislature.

Although Woodrome said the flat tax would not change county and city sales tax structures, the flat tax would increase the sales tax to make up for revenue lost from corporate taxes, individual income taxes, cigarette taxes and a whole host of other taxes now on the books. Woodrome would not speculate as to how much the sales tax might increase.

When asked what Sebastian County business owners might think about a county sales tax of 2- to 3-cents above the current 9.25% sales tax, he argued that the overall reduction in other taxes would be enough to keep Sebastian County residents from traveling to nearby Oklahoma cities to buy groceries, clothes and other goods and services.

The flat tax also would remove business-to-business taxes. The plan to implement that exemption would be a task for legislators to accomplish after the ballot item is approved by voters, Woodrome said. Also, the flat tax plan would be a boon for the recruitment of manufacturing jobs — through removal of the tax burden on goods manufactured in the state — and help promote Arkansas-based Internet sales, he argued.

“You’ll see a swell of manufacturing return to our area,” Woodrome said.

The City Wire requested input on the AR OneTax from John Shelnut, head of the economic analysis and tax research arm of the Arkansas Department of Finance and Administration. Specifically, Shelnut was asked the following questions:
• From the standpoint of revenue generation, what is your opinion of the likelihood of a flat tax generating the necessary level of state revenue?

• How much would a sales tax have to increase to generate the necessary revenue if all other taxes and exemptions were eliminated?

• Would such a tax help/harm/have no effect on consumer and business transactions inside the state?

• Would such a tax help/harm/have no effect on consumer and business transactions outside the state?

• In general, what does the research indicate as to the pros and cons of flat tax structures implemented at a state level?

Shelnut responded by stressing that his evaluation in no way implies or reflects a policy statement from the department. With that caveat, Shelnut essentially said there is not enough information in the proposed ballot item to answer the questions.

“I think the general consensus is that we will need more concrete tax proposals to respond to for this. It is a sweeping concept with some massive revenue and rate implications. We would not want to speculate with those,” Shelnut noted in an e-mail.

Nevertheless, Woodrome is speculating it will cost between $250,000 and $400,000 to get signatures and place the referendum on the November 2010 ballot. He also thinks the effort will gain enough grassroots support to push it over the top.

“Our intent right now is to do this through a grassroots movement. … We really want this to be a groundswell from the bottom to the top,” Woodrome said.