A tax cut plan by Democratic gubernatorial candidate Mike Ross would be one of the largest middle class tax cuts in Arkansas history, but the likelihood of much of it actually taking effect appears doubtful, at best.
The proposal by Ross would expand the size of income tax brackets to lower state income taxes paid by many Arkansans. Brackets would be increased as if inflationary adjustments had been in place since 1971. The relief primarily would target the middle class by increasing the highest tax bracket from the current level of $34,000 up to $75,100, plus adding similar reforms to the other five brackets.
"When a single mom in Arkansas making $34,000 a year is paying the same income tax rate as someone making $340,000 a year, there is something unfair and morally wrong about our tax code," said Ross at the press conference when the plan was unveiled.
It is a plan almost anyone in favor of lower state taxes would have a hard time opposing. Although the concept of indexing is sort of inside baseball for tax accountants and policymakers, it is not hard to understand that Arkansans' income levels and cost of living have risen considerably in the last 40 years. Anyone who has balanced a personal budget knows that.
So it makes sense that we would update our income tax brackets. That began when the state enacted part of Gov. Mike Huckabee's tax cut package in 1997. However, while the indexing began prospectively in that year, it did not retroactively make up for the lack of indexing from 1971 to 1997. Ross, a state senator at the time, now wants to fix the lack of a catch-up provision.
The biggest problem is that Ross can offer no timetable for his plan. He can't even lay out how much of the plan he will attempt to enact in his first year. Instead, Ross says the plan will be laid out gradually as state surpluses allow for the reduction, comparing it to the way Gov. Mike Beebe cut the grocery tax.
While it sounds good, the problem is that cutting taxes is not that easy. It does not happen simply by hoping that state revenue will grow to the point that the excess will allow for massive cuts without cutting spending.
The basic math of the proposal is lacking. It identifies the desired additional tax cut, but does not identify the corresponding reduction side of the equation needed to balance the budget. Instead, it relies on the hope that the reduction side will take care of itself.
And the problem with the comparison to Beebe's grocery cut is that in 2007 Beebe benefited from a nearly $850 million surplus when Huckabee turned over the keys. That surplus, mostly gone now, largely funded the grocery tax cut. In other words, the incremental cuts in the grocery tax will make it harder to do what Ross is proposing. Ross will be required to cut the state budget for his plan to work and no such proposals have been offered so far.
As a Republican longtime advocate for state income tax reform, state Rep. Charlie Collins told me this week, "It is nice that now both Republican and Democrat statewide candidates are acknowledging the need for state income tax reform. Hopefully we can start working together to turn Arkansas into a jobs magnet."
Collins is right. It is a good thing that Ross and other Democrats are starting to see the benefit of a policy Republicans have been pushing for years. But until Ross can show us some specifics as to when and how he plans to do all of it, I am still skeptical it will actually happen under his watch.
Commentary on 02/22/2014