Taxes help pay for the public services that many of us take for granted — most of our state budget goes to funding education and health services that benefit us all, whether we personally use them or not. But there are better and worse ways for a state to raise revenue.
Arkansas’s unfortunate reliance on sales taxes creates an upside-down tax system that asks the poor to pay a greater share of their income than the rich. Compounding that injustice is the ongoing campaign to make the rich richer. Ideologues in the state legislature remain myopically focused on cutting the top income tax rate to the benefit of the wealthy.
In service to this ideology, they’ve shared a lot of misleading half-truths. For example, Republican lawmakers tried to claim that their recent tax cut benefited everyone making more than about $24,000 annually, but that’s barely true. Most of the dollars in lost revenue will go to those with the most income.
Another argument they’ve offered to excuse this obvious giveaway to the rich is that low-income taxpayers have already “been taken care of” in previous legislative sessions. Unsurprisingly, that’s also misleading.
Using data from the Institute on Taxation and Economic Policy and Arkansas Advocates for Children and Families, we can show that going back to 2014, the top 1% of Arkansans have gotten more back in annual tax cuts than the bottom 80% combined.
This disparity is even worse than it first appears on the surface – only about 10% of these tax cuts have gone to the bottom 60% of Arkansans.
So, what’s the deal? Behind these flimsy defenses of how they’ve already helped the poor, most legislators probably understand that the poor and middle-class don’t really get much from these tax cuts. And keep in mind, the legislature has also raised sales and excise taxes over this same time frame.
They might think it’s worth it to soak the poor with sales taxes in service to cutting taxes for the rich because they believe it will be better for “the economy.”
None of the consultants they hire to tell them that ever quite tell them that, though. In fact, they pretty much tell them the opposite:
This is from Regional Economic Models Inc., or REMI, the economic consultants the legislature hired back in 2018. Lots of red, isn’t there? That means that when you consider our state’s balanced budget requirement that means every dollar in tax cuts is a dollar in lost revenue, cuts to the top tax rate actually reduce the size of our state economy. That’s because state revenue lost to tax cuts could otherwise pay for hospitals, schools and roads, which also help grow the economy.
Policymakers didn’t like that finding, so they tried again in 2021. Let’s consider the report from Moody’s Analytics. They ignored state spending and only looked at the tax side of the equation, which biases the results in favor of cutting taxes. Even so, their analysis of the proposed cut to the top rate at that time from 5.9 to 5.5 showed that it would grow our state economy by a little less than $100 million annually.
If that sounds good at first, consider that our state economy totaled about $125 billion in 2022. Let’s see what that looks like. Each of the dots below represents $50 million in state economic activity. There are two orange dots that represent our gains from tax cuts. I’ll give you a minute to find them.
If the legislature cares about economic growth, this seems like a bad strategy.
For example, the (I guess radically liberal) U.S. Chamber of Commerce Foundation argued that investments to resolve our childcare crisis would grow our economy more than six times as much as dropping the top tax rate 0.4 points:
This is a case of feels over reals. The data says one thing, while ideology says another.
You can be confident you’re correct when you say these tax cuts don’t help most Arkansans. You can also call out the dishonesty when proponents of tax cuts say their goal is to provide an economic boost. If growing the economy is really the goal, putting our money into helping all Arkansans — not just the rich ones — is the wiser investment.