Mike Wickline at the Arkansas Democrat-Gazette has the news today that Republican state lawmakers are already planning a special legislative session to cut taxes in the next few months, perhaps even sooner.
That’s despite the fact the Legislature just wrapped up its 2024 fiscal session last week. Fiscal sessions — which take place on even-numbered calendar years — are supposed to be restricted to budget bills, rather than substantive policy such as changes to the tax code. But special sessions have become such a common recurrence that one wonders whether it wouldn’t be easier and cheaper to simply tack one on to the end of each biannual fiscal session instead.
Last fall, Gov. Sarah Sanders called a special session to accomplish two things: restrict Arkansans’ ability to access government records and cut taxes for the state’s top earners. The first proved to be highly controversial even among Republicans, and the governor was forced to settle for a more modest (though still bad) retrenchment of transparency. The second, though, sailed right through. Republicans lowered the top state income tax rate from 4.7% to 4.4% and the top corporate rate from 5.1% to 4.8%, beginning this year.
The cuts last fall were just the latest in a long series of rollbacks. Back in 2019, the top individual tax rate stood at 6.9%. Under Sanders and her predecessor, Asa Hutchinson, the Legislature repeatedly whittled away at the rates paid by both individuals and corporations, constricting the revenue available for schools, health care, foster care, corrections and countless other state services. Republicans have said before that they hope to phase out the state income tax entirely in the coming years, and they appear to be serious.
Senate President Pro Tem Bart Hester (R-Cave Springs) said last week that he expected a special session on tax cuts in August or September. But Wickline reported on Twitter today that outgoing Speaker of the House Matthew Shepherd (R-El Dorado) suggested the Legislature could take up the issue even sooner, given that it needs to reconvene anyway before the fiscal year ends on June 30. Lawmakers must take care of a final piece of budget business — the appropriation for the state Game and Fish Commission — that they somehow failed to deal with during the month-long fiscal session that just passed. Why not cut taxes now, Shepherd seems to suggest.
Yet Wickline also reported the state is projecting a much larger surplus than previously expected for the current 2024 fiscal year. The Department of Finance and Administration is now projecting surplus general revenue of about $708 million, up from its previous $241 million estimate. The projection for the upcoming 2025 fiscal year has leaped from $371 million to $764 million.
That may sound odd: If the state keeps slashing taxes, how can it be so flush with cash? The answer is that the projections aren’t to be trusted. The state itself forecasts how much tax revenue it expects to collect in a given year, and if it lowballs its own estimates — as it has consistently done — it’s easy to beat those numbers, thus accumulating a “surplus.” And the existence of a “surplus” justifies more tax cuts, no matter what the real-world needs of people and communities out there in Arkansas.
The other side of that fuzzy math equation is state spending, which is growing at a far lower rate than it has in recent years. The budget bill just passed by the Legislature and signed by Sanders increased the budget by about $109 million over the previous year, or about 1.76%, with most of that money going to the new school voucher program created by the governor’s signature education law, Arkansas LEARNS. Most state services and programs got little to no increase. It was a far smaller increase than in other recent years.
To some taxpayers, it may sound appealing to hold state government spending flat. But as in the private sector, a 0% increase in a time of year-over-year inflation is the equivalent of a cut. And every year, the population of the state grows, and the money needed for services rises accordingly — whether in the form of more students in classrooms, more disabled people in need of home health aides, parents desperate for help with child care, assisted living facilities struggling to stay afloat, cities with decaying water infrastructure, schools facing unaffordable insurance premiums, and on and on.
Legislators could put the hundreds of millions of dollars in “surplus” on deck this year into any of those worthy things, or a dozen others. But when setting state spending priorities, they act as if Arkansas is strapped for cash.
Consider the case of a new 12-week maternity leave program for schools, created by Arkansas LEARNS as a way to incentivize districts to give teachers and other employees more time off. It’s a worthy-sounding program, but only a handful of districts statewide have opted into it. Why? Because it’s far too stingy: The state only pays for half the cost of a substitute to fill in for a teacher with a new baby, leaving the district on the hook for the other half, plus the salary of the teacher on leave. As David Ramsey reported:
So for districts, that’s half of what they would have had to pay to offer a 12-week maternity policy before LEARNS (the salary of the substitute), but because the districts will also be paying the teacher who’s out, it’s still significantly more than what districts would pay if they simply did not offer the policy at all. A district with no maternity policy is on the hook for the full cost of the substitute, but not for paying the teacher who elects to take time off.
If state leaders wanted to pay the full cost of substitutes for school workers on maternity leave, they certainly could do so. The same is true in case after worthy case throughout the state. The money to do so is right there — the result of parsimonious budgeting and a healthy economy. But the priority for Republicans, as is true year after year, is instead to pass more tax cuts that primarily benefit the well-off.