Tax cuts widen chasm between rich, middle class
No greater joy can be experienced in a legislative body at any level than to cut taxes, especially when the beneficiaries are businesses and the well to do.
The people who are hurt or at least not advantaged by the tax cuts either never vote or else will never grasp what you did to them. The harm that will befall nearly everyone, in the form of reduced services and economic hardship, won't come for several years and you will be out of office thanks to term limits or else your lawmaking role in causing the crisis will be forgotten. Louisiana, Kansas, Oklahoma and a few other modern Republican states offered that lesson.
So it was for the much ballyhooed Arkansas Tax Reform and Relief Legislative Task Force, which is about to submit its ideas to the Legislature and Gov. Hutchinson on how they can best go about slashing the taxes of the rich and the moderately well off next January. It looks like they will recommend tax cuts that will reduce state revenues $300 million a year or so. They reaped great headlines about cutting taxes. Hutchinson praised them and looked forward to gutting revenues with them after his election.
Since Hutchinson took office in 2015 with a solidly Republican Legislature, they have been cutting taxes little by little but also squeezing school and college budgets every year and holding down state employee wages, except those of the governor's and Attorney General Leslie Rutledge's aides, so the state does not run into an illegal spending situation at year's end. It is a great exercise in shadow boxing.
But the governor wanted last year to give better-off people - those netting at least $80,000 a year - a really nice tax cut in 2019, so the Task Force's job is to recommend how best to do it. Its first choice is to cut the top marginal rate from 6.9 percent to 6.5 percent on incomes above $80,000. It also suggests a few other tax breaks for the class, like a reduction in corporate income tax rates, an income-tax credit for property taxes that businesses pay every year on their inventory, and extending the carry-forward period for claiming net-operating losses on tax returns from five to 20 years.
All of the recommendations will lower state revenues by $300 million a year or more, but that's just on paper, the legislators and their paid advisers said. By employing a little dynamic scoring, you can eliminate those revenue losses and even project gains.
That is the whole rationale for the tax-cutting movement: Lowering taxes on corporations, pass-through businesses and the better salaried will cause an economic boom. Businesses will expand, hire lots more people, raise employee salaries and people everywhere will want to move to Arkansas to reap the benefits of not being taxed much. Really, that is the argument.
Taxes for the well to do have been slashed many times at the national level and at state levels, too, but it has never once produced that wonderful result. The last four national economic recessions, including the two deepest and longest in modern history, have occurred under Republican presidents who had dramatically lowered taxes for the rich. You may recall that the Great Depression, whatever its causes, followed a similar Republican strategy.
If tax cuts for corporations and rich investors produce such salutary results, Arkansas right now would be in the midst of a marvelous economic surge. The Trump tax cuts of December 2017 were devised to take effect in January so they all would receive immediate profit gains and pass them along in the form of expansions, hiring and pay raises. It hasn't happened nationally or in Arkansas.
In fact, the Labor Department report last week showed that, in spite of all the breezy economic reports the state has offered, the labor force in Arkansas and the number of people employed has actually been falling since January. There were 8,000 fewer people on the job in Arkansas in July than in December and wage gains have been nonexistent to sluggish. The proposed Arkansas tax cuts for the prosperous are trifling compared with the rewards from the federal tax cut.
The economic boom they promise for the Republican tax cuts of 2019 won't happen. Make a note to remind me in three or four years if I'm wrong and still around.
There are a couple of phony right-wing think tanks in Arkansas that regularly promote the idea that Arkansas is a high-tax state for well-to-do job creators and that its confiscatory taxes are the reason Arkansas has lagged far behind the rest of the country. Their analysis depends upon absolute ignorance of the state's history and of its tax structure. Arkansas' taxes already favor the rich over the poor. People who hold low-wage jobs and are in the bottom 40 percent of family incomes pay twice as much in state and local taxes as a percentage of their income as do people with incomes more than $350,000.
Next spring, the differential between the rich and the poor and middle classes will widen. The people who made it so will be heroes, for a time. It's just politics.
Ernie Dumas, a veteran Arkansas journalist, writes a weekly column for the Arkansas Times. He can be contacted by email at [email protected].