Fairness, adequacy and tax cuts

As 2013 was undoubtedly proclaimed “the Year of the Republican” in the Arkansas House and Senate, campaign 2014 might be defined as the year of talking about taxes.

This past Legislative Session there were several tax changes/cuts that were given presumably as concession to passage of the Private Option plan to the state’s version of the Affordable Care Act.

What? How did that happen, you ask? How will it affect me? Why didn’t I hear about these tax cuts and their impact?

The changes to the tax code, enacted by the Legislature were quietly bargained for and approved amid the clamor of guns law, confusing fetus protection bills and an unending shrill daily railing against all things related to Obamacare.

The Arkansas Advocates for Children and Families recently released a thorough policy paper on those tax cuts and how they impact all Arkansans. The position paper – “A Better Foundation: Building a Tax System That Works for Arkansas Families” – is 11 pages and somewhat technical in review. Arkansas Advocates will release an easier to digest overview soon, hopefully where every citizen can see the state of Arkansas’ tax laws and understand the condition of Arkansas’ tax codes.

But this policy paper is relevant as we begin a 2014 political season in which the tax talk has begun in at least two of the major races.

Announced Republican candidate for Lt. Governor, Rep. Charlie Collins, R-Fayetteville, has continued to talk about further reductions, if not an outright abolishment of the state individual income tax. Collins led the charge, as head of the House Revenue and Taxation Committee, to pull through the changes in the state income tax rate quietly during the most recent session. His vote for the private option, was no doubt, tied to this tax package.

Mike Ross, the announced Democratic gubernatorial candidate for Governor, said last week he favors deep tax breaks for manufacturers in the state.

But back to the Arkansas Advocates for Children and Families report. It is not too flattering, and we quote: “The  changes passed during the 2013 session consisted largely of personal income tax cuts benefiting upper-income taxpayers and sales and use cuts targeted to  specific industry groups.”

And here comes the kicker, the analysis of those tax cuts, from a public policy view point: “As a whole, the tax changes did little to improve overall tax fairness for low- and middle-income families,” the report said.

The report also notes that the tax changes “resulted in flat or underfunding for certain critical services for children and families in the short term.”

It is a chilling condemnation of the targeted “tax relief” approved in the 2013 session. Continuing, the report suggests the tax cuts “further undermined an already strained base for funding future services that are critical to the state’s needs.” The rich got richer and will pay less taxes while the middle-income class will still bear much of the tax load. And the poor, well, they just get poorer.

Two words that still haunt elected officials at all levels from the last two decades in a long-running court case on educational funding – fairness and adequacy – come into prominence in the Arkansas Advocates position paper.

“The tax changes enacted by the 2013 General Assembly fall short on both fairness and adequacy, two key principles of a good tax system,” the report said.

Fairness is not present in the current tax system in Arkansas on the state and local level. Too many times communities are overrun with sales taxes to bypass the more political ways to raise money for needed services. The poor and low-income proportionally contribute more of their basic income to sales taxes than the middle- or upper-income counter parts in every community.

The cuts in 2013 were wpersonal income taxes and new cuts to capital gains (from the sales of assets such as stocks or bond portfolios) that benefited upper-income tax payers.

And the much talked about and heralded tax cut on the sale tax on groceries will only take place IF and only IF certain conditions are met and fails to negate the 0.5% increase in overall sales taxes that were passed last year, by you the voters, for highway and roads.

What? The sales tax cut on groceries might not take place? Yes. That is correct.

Adequacy of revenue through a tax system able to take care of the critical needs of state government is talked about, but often in whispers and wishes, the report indicates. Seldom is there mentioned of a down-turn in revenue when tax cuts are promised or asked from the Legislature. They just take a “we will work this out later” stance.

Lt. Governor candidate Collins on his Twitter account last week had lots to say negative about the Arkansas Advocates report. Remember, he is running on an almost single issue of doing away with personal income taxes with no means or replacing the revenue.