Governor, Legislators, Lobbyists React to Tax Exemption Review

Rep. Davy Carter’s tax break review could provide a small economic stimulus to the Arkansas economy — at least among lobbyists and trade groups at the state capitol.

Earlier today, Talk Business reported that Carter (R-Cabot) plans to hold hearings during the 2012 fiscal session to review every sales and use tax exemption or exclusion on the Arkansas books.

He’s hoping there will be justifiable changes to those exemptions and exclusions that could lead to a “revenue neutral” restructuring of the personal income tax brackets for Arkansas taxpayers, but he won’t push for any changes until the regular legislative session in January 2013.

“My goal is for the legislature to take a fresh look to see whether these exemptions continue to produce these stated benefits and generally whether they still make sense,” Carter said. “To that end, I would like to see the legislature issue a ‘show cause’ notice to supporters of these exemptions and require compelling evidence for their continuance.”

The planned hearings are likely to ramp up lobbying activity for groups wishing to protect existing tax breaks. At the least, those groups and organizations will need to come prepared to put their best foot forward on why their exemption should remain.

Consensus reactions to the proposed idea has been generally positive, although several capitol veterans see the effort as a tall order.

Joint Budget Co-chair Sen. Gilbert Baker (R-Conway) said the idea has merit. “Every one of those exemptions was fought for to be put on a shelf and many of those are looked at as sacred cows. Davy’s idea is a good one and I think we need to look at everything,” said Baker.

His House counterpart, Rep. Kathy Webb (D-Little Rock), agrees. She says in the era of term limits, an examination of exemptions and a re-evaluation of income tax brackets is “long overdue.”

“I don’t know if the political will is there to do something, but I think it needs to be done,” Webb said.

Ron Fuller, a former GOP State Representative and long-time government affairs specialist with clients on both sides of  the political aisle, sees a full-court press coming from those who want to maintain the status quo.

“I think the folks who have them will defend them vigorously,” Fuller said. “If they are reviewed, they should be looked at in light of similar exemptions in those states which border Arkansas. These exemptions have become almost a legacy and many have been in place for a number of years.”

Clint Reed, a principal with Impact Management Group, which also handles public affairs at the state capitol and Republican political clients, says Carter’s effort is “a great conversation starter.”

“Rep. Carter understands the importance of growing our economy, creating jobs, and providing tax relief. This is a necessary, but judicious step, in my mind to that process,” he said.

Reed also noted that the House Revenue and Tax Committee has a majority of Republicans in its make-up and that could affect political dynamics and tactics.

“There are more GOP members than ever before on the Revenue and Tax committee and the chairman is a Republican. Folks with these exemptions and exclusions must consider this and create a bi-partisan team to best justify these exemptions and exclusions,” he said.

A major opponent or ally to any changes in tax policy in Arkansas resides in the northeast corner of the state capitol: Governor Mike Beebe (D).

Beebe seems open to the review at this point, but he offered a cautious condition for the process.

“While my top priority for tax policy remains the elimination of the grocery tax, I continue to be open-minded when it comes to any attempts at tax reform. Reforming tax law is a significant undertaking, but Rep. Carter has shown time and again that he is a thorough, level-headed committee chairman, and we will see what his efforts produce in February.  I’m glad that his goal is to keep any reform revenue neutral,” said Beebe.