Arkansas Advocates for Children and Families has a report out predicting a decline in state revenue beginning in 2022 thanks to major corporate tax cuts at the 2019 legislative solution. Rather than cut spending, the Advocates offer a solution — closing a corporate loophole exploited by national corporations such as Walmart.

The solution would be combined corporate reporting of income.  Said AACF:

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Twenty-seven states plus D.C. require combined reporting of corporate incomes, which prevents corporations from shifting their profits from parent companies to subsidiaries to reduce the taxes they pay to the state.

In the remaining 23 states, which includes Arkansas, it is very common for corporations to shift their profits on paper to avoid or reduce their state taxes. States lost out on $350 million in tax revenue between 1998 and 2001 from Walmart alone.

Arkansas Advocates for Children and Families recommends a combined reporting requirement, which would increase funds needed by Arkansas to pay for important programs, including those on which businesses rely, like education and infrastructure, without further increasing sales taxes on low-income workers.

AACF notes that the legislature in 2019 passed a law enabling collection of state sales tax on purchases made out of state, essentially an Internet sales tax. The change was overdue because the shift in retailing has damaged local businesses and their tax flow to the state. The loss of general revenue is felt, most, in education but also in all other government programs from public safety to highways.

For political appearances, the bill to collect that sales tax — more of a burden to the poor than to the rich — also included corporate tax cuts.

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Those tax cuts are so big, the overall effect of the bill will be to reduce state general revenues beginning in 2022. Simply put, by 2022 Arkansas will raise less in taxes for its general revenue fund than it did before Act 822 was enacted. Reduced revenue typically results in cuts to programs; flat funding programs, which is effectively the same as a cut, over time; or failing to make the needed investments in programs, like not increasing funding for education enough.

 

“In Arkansas, hundreds of thousands of low-wage workers stand to be negatively affected by the combination of the online sales tax and the corporate tax cuts, if nothing is done to remedy the situation,” said Bruno Showers, senior policy analyst at Arkansas Advocates for Children and Families, and the author of the brief. “One common-sense solution to help balance the effects of Act 822 would be a combined reporting requirement.”

Sound thinking. Reality: Poor people contribute little to campaign funds and lobbyists for their interest are vastly outnumbered by corporate lobbyists.

Here’s the rundown of the tax bill, with the estimates on increases and cuts in revenue. A cut in the top rate of the corporate income tax alone, from 6.2 to 5.9 percent, will reduce evenue by $39 million when fully implemented. There are a number of other corporate changes that will mean revenue losses. The broadened sales tax is expected to produce an additional $35 million in its first full year.

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