Taxes: Advantage Ross

In the matter of eroding the state treasury to get elected governor, Democrat Mike Ross played a trump card on Republican Asa Hutchinson on Wednesday.

Ross announced that he would endeavor as governor to give back more of your income-tax money than Hutchinson would. But he said he would do so more fairly, comprehensibly, sensibly and credibly-and slowly, requiring you to wait several years for the full bounty.

The fairness Ross proposes-reconfiguring all the antiquated state income-tax brackets to make them more applicable to modern pay scales-is needed. The reduction in state revenue-a cool $575 million, according to the Finance and Administration Department-would be severe, but at least Ross wants to stretch and soften it, conceivably over eight years or beyond.

In continued service to his ongoing Mike Beebe impersonation, Ross said he would implement his full income-tax cut only in the incremental and affordable way that Beebe has implemented his grocery-tax elimination.

Now in his eighth and final year as governor, Beebe hasn’t managed in annually adjusted draw downs-sized according to what Beebe thought the budget could afford-to get rid of the grocery tax altogether.

Under Beebe’s latest plan, the final portion of the grocery tax would be excised at the end of state government’s payouts in the Pulaski County school case, which would be in 2018.

Ross said he would follow that model on his income-tax cuts, always making sure in each budget cycle that public schools and public safety were adequately funded before determining how much of his long-term reform to put into actual effect.

Hutchinson, conversely, has proposed to cut income taxes only for the middle class and all at once, imposing a certain and immediate $100 million hit on the treasury.

He has said he would tap the usual state surplus to pay for the cut. But the surplus now pays for one-time capital improvements and the governor’s quick-action closing fund for industrial prospects. It has not typically been folded into the ongoing operations budget.

Ross says that Hutchinson, lacking state government experience, is irresponsible on all counts-by imposing a hundred-million-dollar hole in the budget all at once and by eating his seed corn, so to speak, by tapping one year’s overages to pay for the next year’s ongoing expenses. All the while, he’s robbing the pot that usually pays for new construction and local projects uncommonly popular with rural legislators.

Hutchinson also proposed something thoroughly odd and unfair. He would cut the income-tax rate for persons making $20,400 to $33,999 to 5 percent, and cut the rate for persons making $34,000 to $75,000 to 6 percent. But he would not give a person making more than $75,000 the marginal cuts on the portion of his income under $75,000.

That defeats the very purpose of marginal tax rates, which is to treat everyone equally on similar amounts of income and to impose higher rates only at graduated income levels.

By Hutchinson’s plan, a taxpayer making $74,999 would pay the new reduced rate on the portion above $34,000. A taxpayer making $75,001 would pay the old higher rate on that same portion.

Hutchinson would replace cushioned tax rates with a tax cliff.

Ross, on the other hand, proposes to reset all the tax brackets-the income ranges within those brackets, that is-for all state income-taxpayers across the board. Those rates and income ranges haven’t been changed since 1971 except for cost-of-living indexing enacted in 1996.

The current tax table assesses a highest income-tax rate of 7 percent-well, 6.9 percent under new rates taking effect just this January on Rep. Charlie Collins’ bill-on everything above $34,000.

A high rate at $34,000 made sense in 1971. It no longer makes sense.

So Ross would reset the brackets-the income ranges-as follows, by the distant end of full implementation: Below $8,999, 0.9 percent; from $9,000 to $17,999, 2.4 percent; from $18,000 to $26,999, 3.4 percent; from $27,000 to $44,999, 4.4 percent; from $45,000 to $75,099, 5.9 percent; over $75,100, 6.9 percent.

Everyone would pay the marginal rates in the usual graduated way.

That’s a marked improvement that spreads the tax burden more broadly and fairly. But it also serves to lower everybody’s tax bills, eventually by that $575 million.

Exactly how would Ross handle his phase-in? Probably this way, I’m advised: After determining the dollar amount he could spare in his annual budget, he would achieve that amount by resetting the lowest brackets first.

So this early tax-cut round in the governor’s race goes decisively to Ross. His plan is more comprehensive, more equitable and more arithmetically credible.

He proposes vital full reform of antiquated income-tax brackets while Hutchinson, so far, addresses only two of those brackets.

He proposes the usual marginal cushioning between brackets while Hutchinson offers a cliff.

He outlines his full policy but promises to impose it only in affordable increments, while Hutchinson proposes only a partial policy and promises full implementation of that part in a mathematically dubious way.

Ross was pointing out to me the other day that, in 2006, Beebe proposed the gradual drawdown of the grocery tax while Hutchinson countered to cut the grocery tax all at once.

It’s the same thing here, you see. It’s Mike versus Asa deja vu. Or so this new Mike hopes.

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John Brummett’s column appears regularly in the Arkansas Democrat-Gazette. Email him at jbrummett@arkansasonline.com. Read his blog at brummett.arkansasonline.com, or his @johnbrummett Twitter feed.