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JOHN BRUMMETT: A taxing proposition

by John Brummett | January 13, 2019 at 4:30 a.m.

Let's not bury the lead. Let's get it out there and deal with it.

The income-tax cut that Gov. Asa Hutchinson is proposing, at least tentatively as refined by a task force co-chaired by his nephew and Senate president pro tempore-elect Jim Hendren, actually is an income-tax rate increase on some sections of income.

That would require a three-fourths legislative vote to pass, perhaps a modest challenge.

Now, let's quickly scale back any unnecessary alarm the aforementioned may have caused.

Hendren tells me that the Finance and Administration Department assures him that the governor's proposed tripling of the standard income deduction--to $6,800 for individuals and $13,600 for married couples--would guarantee a reduced actual tax liability for at least 90 percent of taxpayers even as sections of their income got taxed at higher rates under a new and simplified set of rates and brackets.

He says there's still some kind of problem with those who itemize large deductions. He says that, if a fix should prove elusive, the governor could always go with the task force's top alternative, which is simply to reduce the top income-tax rate from its current 6.9 percent to 6.5 percent.

That wouldn't raise anyone's tax rate, and a three-fourths majority vote would not be required for a simple tax-rate cut, not that a three-fourths majority wouldn't be easily achieved on tax reduction.

Why, then, is the currently preferred proposal the one that would phase in over three years a change in the state's 16 tax rates to three and reduce the top rate to 5.9 percent?

It's because the task force and the governor--and Arkansas Republicans generally--are obsessed with two objectives. One is to simplify the state's income-tax structure. The other is to provide that Arkansas no longer has the highest top income-tax rate among its bordering states.

Arkansas Republicans tend to define business climate and quality of life solely by whether they can get the top income-tax rate down from 6.9 percent to lower than the 6 percent Louisiana applies to incomes exceeding $50,000, now the second-highest among Arkansas and its abutting states.

Thus, you see, the magic of 5.9.

I don't know what we'd do if Louisiana went to 5.89.

For the moment, the plan is to proceed with the three-year phase-in to an eventual tax structure with three tax rates for three income brackets and to put the rate at 2 percent up to 8,000, at 4 percent from $8,000 to $18,000, and at 5.9 percent above $18,000.

It's moving parts of incomes into the 4 and 5.9 percent rates that amounts to a rate increase necessitating a three-fourths vote even as the standard deduction's tripling supposedly will offset that in nearly all cases.

Meantime, you might have noticed the flat-tax nature of the proposed new three-rate structure, what Hendren calls "the 2/4/5.9."

All income over $18,000, meaning most full-time employment income in the state, would be taxed at the same percentage--5.9.

That's positively Steve Forbesian, regressive and violative of the progressive-rate concepts by which the income tax was begun. It would send thousands and thousands of dollars back to all highest-income earners and tens or hundreds of dollars back to most of the lower-income earners.

Arkansas would be getting its top rate lower than Louisiana's but would start applying its 5.9 percent at $18,000 while Louisiana applies its 6 percent at $50,000. So, the point in Arkansas seems not so much to be to tax at a lower top rate. It's to tax at a lower top rate on higher incomes.

Hendren tells me the aforementioned observation is "intellectually dishonest" because the standard deduction would be increased and the "effective rate" would vary from 5.1 percent at higher incomes to 4 percent at $18,000. I say that's a minuscule difference for a vast income difference--from $18,000 a year to great wealth--and thus "flattish." I say it's a matter of moral judgment, not intellectual honesty.

It's simply another prevailing contemporary conservative Republican principle, which goes as follows: People with the most money ought to get more money back from the government because income taxes are inherently bad, and, by the way, government services to the needy ought to be cut, even to the point of throwing people off Medicaid for not completing an obstacle course.

It may turn out that the 2/4/5.9 plan will prove too complex and the Hutchinson administration will settle on the simple top-rate cut to 6.5. It would be a grudging concession for them, since Arkansas would still sport the highest income-tax rate in the immediate vicinity.

But it would be fairer and more transparent, leaving progressive rates in place instead of imposing a nearly flat tax.

Either way, the richest folks would get several thousand dollars back, perhaps to send their children to the finer colleges, which are found mostly in the higher-tax states.

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John Brummett, whose column appears regularly in the Arkansas Democrat-Gazette, is a member of the Arkansas Writers' Hall of Fame. Email him at jbrummett@arkansasonline.com. Read his @johnbrummett Twitter feed.

Editorial on 01/13/2019

Print Headline: JOHN BRUMMETT: A taxing proposition

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