Gov. Mike Beebe's balanced budget took multiple licks in House committee today.
* The House Revenue and Taxation Committee approved a tax break for manufacturers' utility bills (no, silly, not your home bill.) It will cost $3.8 million.
* The Committee approved an additional income tax break for heads of household with two more more dependents, at a cost of almost $4 million a year.
* The committe endorsed Rep. Ed "Tax Deadbeat" Garner's bill to cut the capital gains tax on Arkanas property, including stock.
It would be catastrophic in terms of budget balancing, a loss the DFA estimated at $66 million or more. I mentioned a study yesterday that demonstrates that tax rates have little impact on economic development, despite the fervent belief otherwise of the Chamber of Commerce and other shills.
Capital gains are accrued in huge measure by people who hold investments for the long-term. Such people might get a windfall from this tax break, but there's no evidence they'd spend the money on Arkansas investments. Capital will still follow highest yields, as it always does. Will a 4 percent savings on the eventual profit in selling an appreciated asset — assuming it appreciates and that's a big assumption dependent on much more than the capital gains tax rate — really produce significant new investment in Arkansas businesses? Dubious.
Gov. Mike Beebe opposes the legislation and his Department of Finance and Administration officials made the case that the state couldn't afford the cut. Rich Huddleston of Arkansas Advocates for Children and Families noted that the tax cut would be of virtually no benefit to working people and that tax cuts in tough times should target those struggling the most. The benefit of such tax cuts goes overwhelmingly to a tiny percentage of taxpayers. Roughly 75 percent of capital gains were reported in a recent year by Arkansas people making more than $250,000 a year.
An Arkansas State economist explained that selling an asset (land, a business, stock) at a profit does not amount to an increased investment in Arkansas or equate to more jobs. Indeed, sometimes when people buy a business they have to cut costs (jobs) to continue a profit sufficient to pay off the higher price of the asset. He said most of the big sources of venture capital aren't subject to capital gains taxes in the first place. Many legislators don't get it or want to get it. They believe lower taxes mean more prosperity. The Bush tax cuts stand as an enduring monument to that sort of muddled thinking.
* Then, for good measure, the committee almost approved Rep. Keith Ingram's bill to allow a credit in Arkansas for sales and use taxes assessed on vehicles and trailers purchased in other states. It would have a small revenue impact, DFA said. It was ruled passed on a voice vote, but fell short on a roll call.
On the jump, Republicans complain Gov. Beebe is playing partisan politics by calling the Republicans mass tax cut plans voodoo econmomics. No, just simple arithmetic. Not a single Republican yet has been able to demonstrate anything but George Bush-style faith that giving windfall tax breaks, mostly to the wealthy, will create a single job.
For his part, Beebe said he might be inclined to let the Republicans pass all their tax cuts, without his signature, and then let them figure out what would be cut from the state budget to pay for them.
REPUBLICAN NEWS RELEASE
In response to Governor’s Mike Beebe’s partisan claim that Republican legislators are using “voodoo economics” to propose tax relief for working Arkansans, Republican Party of Arkansas Executive Director Chase Dugger issued the following statement:
“Instead of working with conservative Republicans to provide tax relief for Arkansans, Governor Beebe is playing partisan politics to force his budget on the people of this state. Completely ignoring the proposals of legislators across the aisle makes you question the Governor’s commitment to enhancing Arkansas’ economic environment and creating more and better jobs. According to the Governor, if it’s not a Democrat idea, it’s ‘voodoo economics.’
“The Governor’s budget is limiting our economic horizons and job growth by spending money that could be applied to tax cuts. Governor Beebe’s proposed 2.5% growth in state spending should be utilized for tax cuts that will provide economic relief to working Arkansans, attract new business and create jobs.
“Governor Mike Beebe’s rigid and partisan style of leadership leaves no room for competing ideas to fairly surface. Unfortunately, like President Obama, Governor Beebe believes government can invest our money better than the people can.
“Today, the Republican Party calls on Governor Mike Beebe to stop the name-calling and partisanship so that both parties can work together to improve our economy and move Arkansas forward.”