UA economist sees options beyond tax cuts for investing budget surplus

The state’s $945.7 million budget surplus will offer lawmakers and Gov. Asa Hutchinson a chance to reduce the state’s income tax bracket, but it will present other opportunities for investments.

University of Arkansas Walton College economist Mervin Jebaraj said while tax cuts are good politics, there are a number of ways the state could invest millions in one-time money that could produce statistic-changing results for education, jobs, broadband and entrepreneurship.

Appearing on this week’s edition of Talk Business & Politics, Jebaraj said the politics of tax cuts are always a winner, but from a policy perspective Arkansas’ windfall in tax revenue could be applied in a number of smarter ways.

“I think the politics of tax cuts are always good in most instances,” he said. “From a policy perspective, it’s very hard for me to make a convincing case that we should use one-time money to pay for long-term tax cuts.”

Gov. Asa Hutchinson has proposed reducing the state’s top personal income tax rate from 5.9% to 5.7% – a move that would cost about $55 million annually. There is a high degree of legislative support for this proposal and some lawmakers are eager to cut taxes even further.

Jebaraj said tax cuts do provide relief to citizens, but don’t necessarily entice people to move en masse to a state.

“It’s not convincing to me and there’s certainly not the wide body of research to argue that tax cuts move people. First of all, people don’t move between states in general and then the few people that do move, move for jobs. So there’s really a whole list of other things that the state could improve on to attract more people to Arkansas, to attract more businesses to Arkansas. And again, tax cuts is just not at the top of the list for those businesses and for those people,” he said.

He does advocate using the surplus to invest in STEM (science, technology, engineering and mathematics) education. Science and technology businesses could grow workers exponentially with smaller state investments. Broadband expansion throughout Arkansas could also be a game-changer. And, Jebaraj sees a chance to make investments in a variety of entrepreneurial enterprises – as some states do – that could pay off with job growth and per capita income increases.

“We could have an evergreen fund that attracts businesses, entrepreneurs that are based in Arkansas, as opposed to just investing based on risk profile. We could attract businesses and entrepreneurs who will be based in Arkansas. We could put more resources towards mentoring women entrepreneurs and minority entrepreneurs,” he said. “There’s a long list of strategic initiatives that the state has had various plans sitting on shelves. It’s time to take those plans off the shelves, dust them off, sort of update them to where we are in 2021 and invest in those funds.”

Watch Jebaraj’s full interview in the video below.