Taxation vexation

LITTLE ROCK — Operating on the theory that what doesn’t kill me will make a good column, I motored to Fayetteville on Thursday.

This was to accept a generous invitation from the amiably arch-right Republican state Rep. Charlie Collins of Fayetteville. It was to debate him publicly on state income taxes. This event grew out of his obsession with lowering state income-tax rates to make the state a supposed “jobs magnet,” and my scoffing at the very idea.

I’d like to rearrange these rates, exempting more of the lowest income from them altogether and hitting the rich folks a little more steeply than the 7 percent that kicks in way too early at $31,000 or so. I’d want any income-tax-rate rearrangement to be revenue-neutral so that we could afford Medicaid and keep ourselves out of court by adequately funding public schools.

Income-tax reductions are not even the right tax-cut priority. Gov. Mike Beebe’s continued drawdown of the sales tax on people’s grocery food items remains the greater moral imperative. It’s also voter-mandated by two landslide elections. We couldn’t possibly afford both.

You let Republicans have their way from Washington to Little Rock and here’s what you’ll get: U.S. Rep. Paul Ryan’s finite federal block grants for Medicaid that end federal matching funds and a reduced state budget drained of tax revenue and unable to make up that difference. Somebody-children? old folks? the disabled? local doctors on their Medicaid reimbursements?-will pay the price.

If indeed the federal government ever seriously addresses spending reduction, then state governments will need to be standing ready with reliable tax structures for more responsibilities.

I am so absolutely confident of my argument in opposition to Collins’ proposal that I happily synopsize its five points:

1. Money is money. Would-be investors and job creators are smart enough to get to the bottom line. And that bottom line shows that Arkansashas the second-lowest property taxes in the country and, altogether, is not an uncommonly burdensome state-but an average one-for taxation at the state and local levels combined.

Amendment 59 keeps the state’s business property-commercial, utility, timber and farm-from being taxed at amounts rising proportionally with fair market value. That’s surely as sweet as an income-tax cut.

1. The income tax is fairer and more efficient than the sales tax because it takes a higher percentage as incomes rise. Thus it reflects the basic earning power that defines the economy.

Here’s a good example of progressive income-tax rates, meaning higher at higher levels, and why they makesense in a fair way: Would you rather pay a 50 percent tax on a million dollars or a 1 percent tax on $15,000? Which provides you with enough disposable cash in your pocket to buy a new house and new car and a steak dinner?

You take the low tax rate. I’ll take the half-million dollars after I pay my high tax rate.

1. Arkansas needs more government services than some places because we have more poor people and more human needs. Changing that can only come from investments in education, training, venture capital and quick-action closing funds for competitive inducements to job prospects, and those cost public money.

These services must get provided at the state level, since we have no local control and scant local taxes. The Lake View court case, for example, bestowed the responsibility for equal and adequate educational opportunities squarely on state government, not local school districts.

Yes, economic conservatives andmany Republicans say, but the state treasury has picked up lately, lessening the strain. And, yes, I say, that’s because the state’s economy has picked up lately-doing so, I point out, while the state imposes a personal income tax.

1. Many Republicans assert that they want lowered or eliminated income taxes as a “jobs magnet.” But I strongly suspect that their greater and unstated motivation, one not so easily marketed politically, is that they simply oppose the concept of higher rates on rich people to fund a government helping poor people. They deem that a transfer of wealth.

In Arkansas, where a balanced budget is mandated, Republicans could cut income taxes and thus reduce the state treasury through the back door. They could effectively cut spending through the administrative processes of the Revenue Stabilization Act, which automatically cuts spending levels if collections lag. They could do it without having to make the unpopular specific decisions upfrontabout where to cut.

1. Anyway, what is this about a jobs magnet? How about the opposite? Tennessee has no income tax and has a higher unemployment rate than Arkansas, not to mention the nation’s highest combinedstate and local sales-tax rate. Florida also has no income taxes, but a muchhigher unemployment rate than ours.

The national Institute on Taxation and Economic Policy says the nine states with the highest personalincome-tax rates grew in gross state product from 2001 to 2010 by 10.1 percent while the nine states with no personal income tax grew by 8.7 percent. Economic conservatives counter that those growth statistics are based on more complicated factors than mere income-tax rates.

Why, yes, my point, exactly.

John Brummett is a regular columnist for the Arkansas Democrat-Gazette. Email him at jbrummett@arkansasonline.com. Read his blog at brummett.arkansasonline.com.