Today's Paper Latest After 9/11 Story ideas iPad Core Values Weather Newsletters Obits Puzzles Archive Coronavirus The Article

Make state great

Improve business environment by Jeremy Horpedahl Special to the Democrat-Gazette | May 4, 2017 at 2:59 a.m.

Arkansas is an economic powerhouse on par with Texas, California, and New York. Don't believe me? Just look at the list of Fortune 500 companies. Sure, ranked by the number of Fortune 500 companies, those states are at the top, but those are also among the most populous states.

If we rank states on the number of Fortune 500 companies per person, Arkansas does well. Very well, in fact. Our six current Fortune 500 companies place Arkansas at 11th among the 50 states. With two Fortune 500 companies per million people, we trail New York slightly, but are way ahead of California and right above 12th-ranked Texas. Thirteen states don't have a single company on the list of 500.

But the picture is not all rosy: Arkansas' big companies are also old companies. This is evidence of little recent entrepreneurship.

You'll be surprised to know that the "youngest" of Arkansas' Fortune 500 companies is Wal-Mart. The first Wal-Mart Discount City store opened in 1962. The other five companies all started before Wal-Mart. Tyson (1935), Dillard's (1938), Windstream (a 2006 spinoff of Alltel, founded in 1943), and JB Hunt (1961) are all Arkansas born-and-raised companies. Murphy USA, a spinoff from Murphy Oil, was born in Louisiana in 1950.

Consider one more fact: Over one-third of the Texas companies on the list were founded after Wal-Mart in 1962, even if we exclude Texas' energy industry. And Texas is not unusual in this sense. While the rest of the country innovates, Arkansas is held back by something, and it's not economic incentive packages. None of our homegrown Fortune 500 companies needed a dime of taxpayer funds to set up shop in our state.

The good news is that Arkansas is capable of economic greatness, but we have not lived up to our potential for the past half-century. Why? Our great people and natural resources haven't changed but our governmental policies have.

One clear change since Wal-Mart's founding is that Arkansas' government has grown in size and scope. In 1962, state and local governments in Arkansas spent about $1,600 per Arkansan (adjusted for inflation). Today, that number is approaching $10,000, an over 500 percent increase. Over the same time period, income per person only increased by about 200 percent.

To fund higher levels of spending, our state adopted higher taxes on personal income, corporate income, and retail sales. In 1962 the top personal income-tax rate was 5 percent, but rose a decade later to 7 percent, where it has stayed until dropping slightly to 6.9 percent recently. Likewise, the top corporate income-tax rate increased from 5 percent in 1962 to its current 6.5 percent.

The statewide sales-tax rate was 3 percent in 1962 and there were no local sales taxes. Today, the statewide rate is 6.5 percent, and combined are over 10 percent in many cities (over 9 percent on average). By contrast, while Texas has increased its sales-tax rate since the 1960s as well, its average sales-tax rate is lower than Arkansas. Most notably, Texas has no personal income tax.

Of course, we neither can nor should try to emulate everything from our past, but instead should look to the best parts of our history.

Arkansas has a rich history of business and entrepreneurship, but in recent decades bad government policy has stifled economic growth. Taxes are not the only policy that matters, but they are a major one. High up on the list would also be regulations such as occupational licensing and other barriers to work and entrepreneurship. For example, Arkansas has the second most burdensome licensing laws in the nation.

The Tax Reform and Relief Task Force has a perfect opportunity to improve Arkansas' tax climate. The task force was created by the Legislature to study our tax code in detail over the next two years. By working to remove a mountain of special-interest exemptions and lower tax rates, it can help to improve Arkansas' business environment.

If it succeeds, when our grandchildren look at the Fortune 500 list in another six decades, Arkansas will continue to be an economic powerhouse with many new businesses both large and small, and a standard of living that is the envy of the South.


Jeremy Horpedahl is an assistant professor of economics at the University of Central Arkansas, and a scholar with the Arkansas Center for Research in Economics.

Editorial on 05/04/2017

Print Headline: Make state great


Sponsor Content