Davy’s Daunting Task: The Push For Tax Reform Faces High Hurdles

Rep. Davy Carter’s interim call to review the entire state tax code should be a highly educational experience, but the chance to overhaul Arkansas’ tax system will face real world hurdles.

Carter, the Republican from Cabot who chairs the House Revenue and Tax Committee, expanded the scope of his interim committee’s effort to examine every sales and use tax exemption and exclusion on the Arkansas books to include an explanation of corporate and personal income taxes, the severance tax, property taxes, economic incentives and more.

Time permitting before the start of the 2013 session, Carter wants to allow for legislative members to discuss ideas for tax reform with an effort towards understanding the impact of their proposals on state revenues and services.

Gov. Mike Beebe (D) has initially applauded the review effort, though he’s not commented on the recent expanded scope of the panel’s upcoming work which starts April 19 at the state capitol.

That said, Carter’s committee’s efforts face some stark realities if the ultimate goal of overhauling the tax code is to occur.

For starters, just removing a few of the 121 sales and use tax exemptions that total $1.2 billion will be difficult.

Of the $1.2 billion in exclusions, $800 million — that’s two-thirds — fit comfortably into these three categories:

• The food tax exemption, which legislators and Gov. Beebe have spent the past 5 years whittling away.
• Motor fuels and used vehicles. Cars, trucks, boats, buses, barges, and trains all get a tax break on their fuel as does the little guy who buys a used car or truck.
• Agricultural and manufacturing exemptions. Farmers who raise anything from cotton to chickens get excluded from a variety of sales taxes as do manufacturers of just about any kind of widget.

It’s a sure bet that these 3 key categories will be well-fortified to survive a repeal.

That leaves Carter and his crew with about $400 million of sales tax breaks to determine if they are justified. Those remaining tax breaks cover school districts and local governments, non-profit organizations such as the Boy Scouts and Girl Scouts, and newspaper and agency advertising, just to name a few.

It’s certain that a number of these causes will present justifiable cases for the status quo.

There will also be fine cases made for reducing the corporate income tax, cutting capital gains taxes, even providing more property tax relief in an effort to lower taxes on everyday Arkansans and to compete with tax reform proposals in neighboring states.

With so much invested in the status quo and with solid arguments for making major changes to cut taxes, the prospects for finding ways to shift tax burdens in a way that comes halfway close to being revenue-neutral will be a Herculean task.

Add to the mix that Gov. Beebe is unlikely to be cooperative with a radical tax overhaul on the premise that it could threaten essential state services or drag the state back into unwanted litigation and, now, lawmakers will have to overcome a veto proposition.

I think the tax review will be a great public exercise and might remind a few of us of our school days. The difficult task will be “after graduation” and how some of what’s learned in the hearings will translate into real action.

Lawmakers will more easily find ways to nibble around the edges and I give them a much better chance of slowing government growth, but seminal tax reform is likely to be elusive.

Roby Brock is the editor-in-chief of Talk Business & Politics. He can be reached by e-mail at [email protected].