Children And Families Advocate Counters Capital Gains Claims

Editor’s note: Yesterday, we conveyed thoughts from Randy Zook, president of the Arkansas State Chamber of Commerce and Associated Industries of Arkansas. Zook outlined his support for education improvement, a tax break for manufacturers, and an elimination of the capital gains tax in Arkansas.

Rich Huddleston, executive director of Arkansas Advocates for Children and Families, offered a counter-view on cutting Arkansas’ capital gains tax in a recent release from his organization. We reprint a portion of that release and provide a link to some of the graphs and a report he cites here. If you want to e-mail Huddleston, he can be reached at [email protected].

Cutting Arkansas’ already generous capital gains taxes would benefit only the super wealthy, with three quarters of the tax break going to the top 1 percent of taxpayers, according to an analysis by Arkansas Advocates for Children and Families.

Taxpayers making more than $352,000 a year would pay on average $7,142 less per year in taxes if capital gains taxes were eliminated in Arkansas. That compares to a tax break of $2 per year for middle-income workers. AACF based the analysis on microsimulation tax models run on Arkansas taxpayer data in November by the Institute on Taxation and Economic Policy.

"Cutting capital gains taxes in Arkansas would benefit millionaires and do nothing to support our state economy," said Rich Huddleston, AACF Executive Director. "It could even hurt our economy because these wealthy individuals aren’t likely to go spend that windfall locally on food, shelter and other basic necessities like average taxpayers would. They’re going to re-invest it in stocks nationally or internationally. On top of that, Arkansas would lose millions in revenue for the education, transportation and health systems on which we all depend."

At least one bill filed in advance of the 2011 Arkansas General Assembly proposes to cut some capital gains taxes based on income from investments made in the state. House Bill 1002 would include a smaller subset of the overall capital gains taxes, but would still disproportionately benefit the wealthy, according to AACF’s new report, "Millionaire’s Gain: The Impact of Cutting Arkansas Capital Gains Taxes."

Under House Bill 1002, the top 1 percent of taxpayers would see an average tax cut of $4,220 a year. Middle class taxpayers would receive an average tax break of just $1 per year, showing how dramatically cutting capital gains benefits the super wealthy. In Arkansas, the top 1 percent of wage earners includes just 13,000 tax filings.

Capital gains are profits from the sale of an asset, such as stocks, bonds, investments, vacation homes, art and other items when they are sold or liquidated. By exempting 30 percent of capital gains income from taxes, Arkansas is one of eight states among the 41 with income taxes that already offer generous tax breaks on capital gains, according to the Institute on Taxation and Economic Policy.

You can read more on this subject from Huddleston and AACF at this link.