Arkansas budget facts v. budget opinions

John Burris, a political consultant and former Arkansas legislator, recently opined about how Arkansas’ budget has changed for the better. That heading caught my attention, as I am disappointed with the proposed budget.

While Mr. Burris made some good points in his opinion, I was struck by his comment that the budget will grow less than 3% this year, “below inflation.” This statement made me quickly recall the famous line that “you are entitled to your own opinion, but not to your own facts.”

Gov. Asa Hutchinson recently proposed a budget with an increase of $149.5 million for 2016, which is right at a 3% increase. For 2017, he proposed an additional budget increase in spending of 3.3%. After that announcement, Gov. Hutchinson then announced a plan to spend an additional $32 million over the next two years for more prison beds and parole officers. When adding this additional $32 million to the budget, it would be an increase in spending of 3.3% in 2016 and 3.6% in 2017.

Meanwhile, the consumer price index for all urban consumers (CPI-U) did not change from February 2014 to February 2015. It was literally 0.0%. If you don’t like that inflation index, the personal consumption expenditures price index collected by the Bureau of Economic Analysis from January 2014 to January 2015 increased by only 0.22%. If we were to keep state government spending below inflation, we would have had to at least freeze state spending, not propose to increase it by $149.5 million and an additional $32 million from reserve funds.

I agree with Mr. Burris that tax cuts help restrict spending increases if done in a fiscally responsible manner to ensure our state budget remains balanced. I also applaud Gov. Hutchinson for following through with his campaign promise to cut taxes for middle class Arkansans. However, there are many other pro growth tax cuts being proposed we could pay for if we would just hold state spending increases to inflation, or at least keep spending increases below $100 million a year.

Sen. Jake Files, R-Fort Smith, and Rep. Joe Jett, D-Success, are proposing a bipartisan bill for a sales tax exemption to manufacturers for repair and replacement parts. When surrounding states have this exemption, and when we are desperately trying to recruit and retain manufacturers, why would we want to tax them for reinvesting in their plants?

Rep. Warwick Sabin, D-Little Rock, is proposing a phased in earned income tax credit for low income WORKING families. I find it perplexing that conservatives would not be highly supportive of a tax credit that incentivizes work to grow the economy when the earned income tax credit was originally championed by the conservative economist Milton Friedman, and when conservative politicians like Paul Ryan are trying to expand the federal earned income tax credit. In addition, with our state sales tax so high, the earned income tax credit for WORKING low income families would help offset the regressive impact of the high sales tax rate that low income families pay in Arkansas.

There are also several other proposals being offered by bold Governors to grow their State’s economy. Ohio Gov. John Kasich, the popular Governor in a relatively moderate state, is proposing to exempt startup and small businesses from state income taxation to incentivize entrepreneurship and small business formation. When startup and small businesses are the biggest drivers of job creation in this country, I believe that is a wise incentive.

While I respect the difficulty of controlling state spending, the fact of the matter is we can afford a lot of these pro growth tax cuts over time if our state government leaders maintain the fiscal discipline and maintain the conviction to limit state spending growth to inflation. It doesn’t require us to actually cut state spending, because the private sector over the long run provides the elixir of economic growth through continuous improvements in productivity.