How much to cut?

Lawmakers’ desire for cuts must not hamper state

Arkansas Gov. Asa Hutchinson sounds like a man who knows the state has bills to pay and unmet needs.

He wants to cut taxes — not many political leaders will turn their noses up at that — but he also knows the services of state government, ones many Arkansans believe the state has a responsibility to fulfill, requires money.

Asked recently about his goal for the size of tax cuts he’d like to see proposed from a task force of 16 state legislators, the governor said “it’s too early” to know what reductions can be made in the future.

The future is 2019, the next time the state Legislature will consider restructuring Arkansas tax code. In the last Legislative session, lawmakers created the Tax Reform and Relief Legislative Task Force to examine ways to cut tax rates more than they already have.

Northwest Arkansas has state Sens. Bart Hester and Jim Hendren along with Rep. Jim Dotson on the task force.

Admirably, the Legislature in its last session approved the governor’s call to reduce income taxes for Arkansans who earn less than $21,000 a year, a change expected to diminish state revenue by $50 million a year. Back in 2015, lawmakers reduced rates for middleincome earners — between $21,000 and $75,000 annually — to the tune of about $100 million a year in reduced collections for state services.

Now that it’s come around to the higher wage earners, the Legislature has hired a consultant, Philadelphia-based PFM Group Consulting, for $312,750 to study tax options in Arkansas and the impact any cuts or restructuring would have on funding services.

Lawmakers say they want to cut the uppermost rate for income taxes, with some of them arguing it will make Arkansas more competitive in efforts to attract companies that will employ more of the state’s residents and, thus, create more taxpayers.

Cuts in taxation always sound good, and perhaps Arkansas’ economic recruitment efforts would benefit to a degree from lower levels of income taxes. One also gets the sense that some Republicans want to implement measures to further limit government, and what better way than to cut off the flow of tax dollars?

No one should assume there’s not a better way to do things, so the work of the task force is important to the state’s future. Can the number of taxpaying individuals and businesses be broadened so that rates themselves can be trimmed without harmful effect on the state’s ability to do what’s needed? Should the state eliminate some of the exclusions from taxation? If more cuts are the goal, can they be done without strangling important state agencies and services?

Will the changes attempt to turn Arkansas into another state that places too heavy a burden on consumption through sales taxes, which take a larger portion of poor people’s incomes than from wealthier people?

Sen. Hendren, a Republican from Sulphur Springs, recently said he views $100 million in tax cuts as the “starting point” for discussions.

Why not $300 million? Or why not $25 million? Maybe lawmakers just like the sound of $100 million, but for the moment, they’re just spit-balling. Once cannot adequately evaluate any aspect of tax policy without getting a handle on the impact such tax cuts would have.

For example, let’s say the state does trim top-level income taxes. Where is the evidence that such a move will produce an influx of jobs-creating companies into the state? It may be abundant, but such proof ought to be considered fundamental to making the case for tax cuts or revisions. Arkansas needs a little more than theory.

Hendren, a task force co-chair, noted similar questions about the sales tax.

“We are going to take a deep dive into our sales tax,” he said. “We have a relatively high sales tax burden, compared to the nation and surrounding states, so how do we fix that? What are the options available to us, and do we need to get rid of some exemptions? Do we need to broaden the base? Do we need to look at taxing some services? How do we reform the sales tax?”

Then there’s that not-so-old bug-aboo of Internet sales tax collections, which some oddly view as new taxation rather than application of existing tax responsibilities to newly established vendors. If Walmart Stores Inc. builds a new store in Arkansas, is its collection of sales tax a “new tax” or just fulfilling the obligations of collecting taxes on sales at a different place? So why would sales made in Arkansas via the Internet ever be considered a new tax?

We get it. People like to rail about the evils of government or to complain about taxes, but state government provides many vital services, from the prison and parole system to operating a system to care for foster children to law enforcement and the judiciary. From professional and business licensing to education to tourism development to elections.

Let’s not establish any numbers without knowing what kind of impact those numbers will have. Will cuts that mean pennies to individual taxpayers be worth making if they do serious damage to a critical part of state government?

Does that mean we’re against tax cuts? Not at all. But a tax cut just for the sake of making one isn’t good policy. Tax reform and cuts based on thorough analysis about the impacts, pro and con, make for smart policy.

What we’re hoping the members of the Tax Reform and Relief Task Force will accomplish isn’t necessarily smaller government, but smart tax policy that moves all Arkansans forward toward a better future.

More task force meetings lay ahead. We should all pay close attention to its work.