REPLY TO GOV. BEEBE ON FISCAL POLICY

“(Gov.) Beebe said the state income tax generates about half the money in the state budget. The tax funds education, human services and prisons, he said. “Who are you going to let out of prison?” the governor asked (state representative candidate Charlie) Collins and the crowd. “What rapist or murderer do you want to set free? What teacher do you want fired?” (Arkansas Democrat-Gazette, September 18, 2010)(1)

(September 2010) No one can dispute that Gov. Mike Beebe has enacted the largest tax cut in Arkansas history—a two-thirds reduction in the state sales tax on groceries. Beebe overcame opposition to the grocery tax cut—strongly supported by the Policy Foundation--by accepting modest revenue reductions for a greater good: eventual elimination of a burdensome regressive tax that falls on the backs of the working poor.

But Gov. Beebe raises a strawman argument when he associates prisoner releases and teacher firings with a reduction in the state income tax, which includes capital gains. The Arkansas capital gains tax can be reduced or eliminated without releasing violent prisoners or firing teachers. One approach is to link Arkansas spending to CPI or per capita personal income growth. Another way is to enact detailed Policy Foundation fiscal recommendations dating to 1998, including spending cuts. Finally, elimination of the capital gains tax can be achieved pursuing the same fiscal policy that has cut the grocery tax to 2 percent. Modest revenue reductions should be accepted for a greater good: jobs for Arkansans struggling to find honest work after the worst recession since the Depression. The Arkansas job market is so weak it has regressed to 2004 levels. This is a crisis that demands immediate action.

Job creation and growth was the fiscal policy behind PA 1005 of 1999, a state Senate measure that exempted 30 percent of a net capital gain from the state income tax. Gov. Beebe served in the state Senate at the time. We trust he will remember that modest revenue reductions—paid for with detailed spending cuts—can result in a greater good for all Arkansans.

(1) Collins proposes elimination of two income tax brackets: the highest (7 percent) and one of the lowest (2.5 percent). Taxpayers currently in the highest bracket would pay 6 percent; those in the lower bracket would pay 1 percent.