Should Arkansas Lower Income Tax Rates? Let’s Go With ‘Yes’

Our friend Roby Brock over at Talk Business bursts out of the post-holiday gate today with a good report on a leading state lawmaker’s proposals to reform the Arkansas tax code.

Rep. Davy Carter, a Republican who heads up the House Revenue and Tax Committee, tells Talk Business he wants to explore ways to reduce the income tax burden on Arkansas taxpayers by reducing or eliminating any of the various sales tax exemptions and exclusions on the books. This is a good idea!

Carter notes, sensibly enough, that many of the tax exemptions are granted to industries or players with the greatest “clout,” and that all exemptions should be regularly vetted to ensure that they are still warranted. If possible, Carter proposes, exemptions could be eliminated in a future legislative session, which would allow for reductions in income tax burdens for Arkansas taxpayers and a more broad-based state tax code.

How do Arkansas income tax rates shape up? Not so hot! Kindly refer to the map above supplied by the Tax Foundation, which demonstrates that the Natural State has a higher marginal income tax rate than all our surrounding neighbors. So not only would Carter’s proposal to lower income tax rates be a positive for Arkansas taxpayers, it would also serve as a helpful step toward making the state more competitive.

It puts me in mind of this report from earlier in the year from Dan Greenberg at the Advance Arkansas Institute, in which Dan lays out his Five Principles for First-Rate Tax Policy (PDF). It goes a little something like this:

Any tax reduction deserves some praise, but legislators should note that some tax cuts are better than others. Writing second-rate tax relief into law will threaten the passage of first-rate tax policy. Legislators should keep the principles of tax policy in mind, because every one of those principles – if established in law – will increase revenue. Among the principles that an ideal tax system encourages and embodies are:

• Simplicity. Taxes should be easy to administer and comply with, in order to encourage voluntary compliance and discourage tax shelters and disguised income.
• Transparency. Taxes should be obvious and apparent: they shouldn’t be hidden from consumers by being lumped in with the price of the purchased good.
• Neutrality. The tax code should not micromanage the economy, encourage people to make decisions for tax reasons, or otherwise distort price signals that affect individual choice.
• Stability. Constant changes in the tax code make planning and investment difficult.
• Economic growth and prosperity. A broad-based, low-rate tax best encourages job creation, capital investment, and economic growth.

Full Greenberg tax talk here. Memorize those principles, or possibly have them tattooed on your chest. Carter’s proposal is a step in the right direction toward implementing at least a few of these principles.

Be sure to read Roby’s whole report, and keep a close eye on this Davy Carter character. He may be trying to sneak some good ideas into the State Capitol, right through the front door. The temerity of these young upstarts!

Tax Chairman Wants to Trade Exemptions for Income Tax Reform (Talk Business) 

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