Racial prejudice and discrimination have long driven Arkansas politics and public policy. Arkansas’s tax policies have especially perpetuated the harm of past racism and done little to reduce the systemic barriers faced by people of color today.
Of course, we can’t and won’t establish policies based on race (not anymore, thankfully). But it’s important to remember that much of our tax policy is a legacy of our state’s historic racial discrimination. As a result, nonwhite Arkansans are more likely to live in poverty and face more barriers to economic success.
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Arkansas was among the Southern states in the years following Reconstruction that passed the constitutional limits on property taxes that still exist today. The biggest barrier to using Arkansas tax policy to reduce economic barriers faced by people of color is Amendment 19, passed during the Jim Crow era in 1934. It requires a three-fourths supermajority vote in the legislature to increase the type of taxes that are more equitable, such as personal and corporate income taxes. In contrast, sales tax increases require a simple majority vote to pass. Sales taxes, which may seem fair because everyone pays them, take a much larger share of the income of low-paid people than their wealthier neighbors.
In more recent decades, we further cemented this inequitable approach. Arkansas voters approved Amendment 59 in 1980, giving favorable tax treatment to owners of timber and farm land and shifting the tax burden to other property owners. The voters later approved Amendment 79 of 2000 that protected property owners from large, sudden increases in their assessed property values and today gives homeowners tax relief through a homestead credit of up to $350. Amendment 79, however, failed to provide any tax relief for renters who pay property taxes passed on to them through higher rents charged by their landlords.
Arkansas policymakers have been all too willing to rely on sales tax growth to pay for tax cuts for the wealthy, such as cuts in taxes on capital gains, or the elimination of the state estate tax on inherited wealth over a decade ago. As a result, Arkansas’s tax system fails to provide the revenue needed to pay for critical investments in our workforce. It also means low-paid families and people of color are more likely to bear a disproportionate share of the tax burden. According to the Institute on Taxation and Economic Policy, the poorest 20 percent of Arkansas taxpayers, those making less than $18,600, pay 11.3 cents in state and local taxes on every dollar they earn, compared to 6.9 cents on every dollar being paid by the top one percent of taxpayers making more than $442,000.
Arkansas has occasionally passed good public policies that have helped people of color. The state’s response to a 2002 mandate by the Arkansas Supreme Court in the Lake View school funding case led to a host of major reforms, including an increase in K-12 education spending and a $100 million expansion of high-quality pre-K. We created ARKids First in 1997 and more recently expanded Medicaid coverage, both of which dramatically cut the number of uninsured children and low-income adults. Arkansas voters recently passed another minimum wage increase that will help 300,000 low-paid workers.
Today’s policymakers are not responsible for our state’s history of racial inequity. That said, we simply haven’t done enough to proactively reverse that legacy. In 2013, the legislature eliminated taxes on capital gains over $10 million, a tax cut that likely benefitted mostly rich, white men. In 2017, the so-called low-income tax cut failed to include a refundable state earned income tax credit that would have truly targeted low-paid taxpayers and put actual money back into their pockets.
Tax cuts now proposed for the 2019 session, which will likely include corporate income tax cuts and a big personal income tax cut that will go mostly to wealthy white taxpayers, will do little to help low-income Arkansans.
If Arkansas is truly interested in creating economic opportunities for all and breaking down the historical and systemic barriers people of color still face, we need better tax policy. That means targeted tax relief for low-paid Arkansans through a refundable state EITC or a renter’s credit. And it means raising new revenue in more fair ways by fully taxing capital gains and inherited wealth to pay for state investments in our workforce and infrastructure.
Rich Huddleston is executive director of Arkansas Advocates for Children and Families.