As lieutenant governor, a former member of the U.S. House Ways and Means Committee, and a taxpayer, I am excited about the possibility of bold comprehensive tax reform and relief that results in pro-growth tax policies to help Arkansas compete and grow jobs. Currently, Arkansas taxes too much and spends too much. So, what should we do about it? While the Tax Reform and Relief Task Force starts their work, I would like to share my perspective.
For years, I have listened to Arkansans talk about how burdensome the tax code is and how it cries out for reform--bold comprehensive reform. In fact, I support Texarkana's income-tax exemption 100 percent, but doesn't it tell us something when our tax code is so uncompetitive we have to exempt an entire town from a key part of it? I want all Arkansans to get relief!
Recommendation 1: Simplify the tax code.
Our tax code is too complicated. There are multiple ways to simplify the code, such as revising the bracket structures, removing unnecessary exemptions in order to lower rates on personal and business income, and eliminating anti-growth provisions like the capital gains tax. According to the nonpartisan Tax Foundation, our individual income-tax rate schedule is "incredibly cumbersome," and "[t]his sort of complexity creates administrative headaches and makes the code difficult for individuals to understand." Let's simplify the code, but let's not stop there.
Recommendation 2: Lower the tax burden.
Simply put, Arkansans are taxed too much. While we have made progress in reducing the tax burden over the past two years, there is still much work to be done. According to the Tax Foundation, Arkansans shoulder a larger state and local tax burden than any of our surrounding states. Nationally, our ranking as the state with the 17th highest state and local tax burden places us well below average. Further, the Tax Foundation's State Business Tax Climate Index ranks us 38th among the 50 states and the District of Columbia. We must do better.
While the complexity of our code is a problem, Arkansas' lack of competitiveness is chiefly due to exceedingly high taxes, not a complicated bracket structure. No potential investor comparing Arkansas' tax code to other states would say, "The high taxes in Arkansas don't bother me, but their tax code is so complex I don't think I'll set up shop there." When potential job creators compare Arkansas to other states, the complexity of our tax code can be a factor, but the price of doing business is the primary deterrent. The tax reform and relief task force should not focus only on revenue-neutral reforms and skip the relief part. That would be a mistake.
Recommendation 3: Embrace transformation as the key to lower spending, tax reform and relief.
Why do Arkansans pay so much in taxes? It's because Arkansas state government requires too much revenue to function--it spends too much. What does spending have to do with taxes? Everything. By law, our revenue and expenditures must balance, and rightfully so. So where do we find the savings to lower the tax burden?
Transformation is the answer to saving taxpayer dollars and reducing the revenue required to fund government. Transformation is about big change, not small. It is not simply about tweaking or trimming a few government agencies and programs. To the contrary, it is about rethinking and modernizing state government over a period of years through innovation. Transformation is the key to tax reform and relief, and I appreciate Gov. Asa Hutchinson allowing me to serve as vice chair of the Transformation Advisory Board. But make no mistake, the Legislature is an indispensable partner in achieving any real, lasting change.
It is essential that we find ways to make state government more innovative, efficient, and effective: it needs a complete and total, top-to-bottom overhaul--transformation.
Why? First, government officials have a moral obligation to spend taxpayer dollars wisely and, as a result, a moral obligation to reform an outdated, top-down government, much of which was designed during the Cold War. Second, transformation done right will result in improved services by a more responsive, transparent, and accountable government and provide Arkansans more value for the hard-earned tax dollars they are required by law to pay. Third, transformation could potentially save hundreds of millions of dollars by reducing the cost of government, which can then be used for tax reform and relief for hardworking Arkansans. Further, those savings can fund critical needs such as education, public safety, highways and infrastructure, and making sure our hardworking state employees have the tools they need to do their jobs.
Tax reform and relief is ultimately about the individuals and families we serve. Whether it's an entrepreneur trying to grow a small business, a family trying to make ends meet, or a parent saving for their child's college fund, we owe it to the people of Arkansas to simplify the tax code, lower the tax burden, and embrace transformation as the path to achieve these goals.
------------v------------
Tim Griffin is lieutenant governor of the state of Arkansas.
Editorial on 06/09/2017