ANOTHER CAPITAL GAINS TAX MYTH

(May 2015) Setting the record straight against Arkansas capital gains tax proponents is a full time job. The myth that only a handful of wealthy entrepreneurs pay capital gains taxes is rebutted by state Department of Finance and Administration records that show more than 115,000 Arkansans pay the levy. The myth that capital gains taxes do not effect economic growth is rebutted by U.S. Bureau of Labor Statistics employment data that show states without these levies have higher job creation rates as a group.¹ Another myth is that phase-out of the capital gains tax is a partisan issue in Arkansas. Public records say otherwise.

Those public records, maintained by the General Assembly show that every floor roll-call vote on proposals to reduce the capital gains tax have been supported by members of both major parties--Republican and Democratic--since 1999. This bipartisan support is one reason why the capital gains tax exemption grew from zero to 50 percent in the period.

Thirty Percent Exemption (1999)

Public Act 1005 of 1999 created a 30 percent exemption to the capital gains tax. State Sen. Jim Hill, a Nashville Democrat, introduced the measure on Jan. 11. It passed the Senate on March 1 and the House on March 26 before being signed by Republican Gov. Mike Huckabee. Both the House and Senate were controlled by Democrats during the session.

Rep. Garner Proposal (2009)

State Rep. Ed Garner, a Maumelle Republican, proposed a measure March 5 to cut the tax on Arkansas capital gains. HB 1947 passed the Democratic-controlled House on April 3 but died in the Senate before a floor vote could be taken. The measure was withdrawn April 9, 1999.

Fifty Percent Exemption (2013)

Pubic Act 1488 of 2013 created a 50 percent exemption to the capital gains tax. It also exempted from state income tax the "amount of net capital gain in excess of 10 million dollars ($10,000,000) from a gain realized on or after January 1, 2014." House Speaker Davy Carter, a Cabot Republican, introduced the measure on March 11. It passed the state House, 87-3, on April 16 with 10 members not voting. Forty-six (46) Republicans, forty-one (41) Democrats, and a Green voted 'aye.'

The measure passed the state Senate, 32-0,² on April 18, with 21 Republican and 11 Democratic votes. The same number (87) of House members concurred in two Senate amendments on April 19, and Democratic Gov. Mike Beebe signed the bill into law. Both the House and Senate were controlled by Republicans during the session.

Battle Over Exemption (2015)

The Republican-controlled Senate raised the capital gains tax, lowering the exemption from 50 to 30 percent. But state Rep. Matthew Shepherd, an El Dorado Republican, sponsored HB 1402 to maintain the 50 percent exemption. House Republican support was key to maintaining the 50 percent exemption. They cast 59 of 68 'aye' votes. Republican Gov. Asa Hutchinson signed the measure as Public Act 1173 of 2015.

Conclusion

Proponents of taxing Arkansas capital gains falsely claim the idea of lowering or phasing-out the tax is partisan by nature. Yet floor roll-call vote on proposals to reduce the capital gains tax have been supported by members of both major parties. They supported exemptions because the state capital gains tax places Arkansas entrepreneurs at a competitive disadvantage with businesses in other states in the region.³

--Greg Kaza

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¹ "The Forgotten 115,000," Arkansas Policy Foundation research memo (April 2015)

² The Senate has 35 members. One was recorded as "not voting," another was "present," and the third was "excused."

³ The Fluor GLS report to the General Assembly early this century noted a competitive disadvantage in this fiscal policy area.