by Max Brantley
Who needs to study when you have the votes? And no point in giving opponents advance notice of your bill or revenue impact report so they can organize opposition.
Carter says his bill would phase in an exemption of 70 percent of the gain on sale of an asset held a year. That more than doubles the current exemption on capital gains. It would appear his bill targets Arkansas investments. I thought I heard discussion indicating real estate sales were exempted, but I was working on other things at the time and must have misheard because the legislation clearly seems to include real estate.
Say Jim Walton sells $1 million worth of Walmart or other stock acquired at a basis of pennies, maybe through inheritance. Under current law, the 7 percent top income tax bracket would apply to only 70 percent of the gain, or about $49,000 in taxes. Under Carter's bill, the bill would eventually drop to roughly $21,000. A pretty nifty tax cut.
Should the actual language ever get posted, I'll pass it along. Again, details don't matter when you're the boss of the legislative majority.
UPDATE: Here's the amendment finally. I may be wrong, but it appears to give the tax break on pre-2014 investments only to gains in excess of $5 million. But it would apply to all capital gains from Jan. 1, 2014 forward. I still don't have the hurryup income impact statement, but Roby Brock of Talk Business says Carter's bill would cost an estimate $3 million the first year; $10 million in year 2; $18 million in year 3, and $28 million in year 4.
I use a hypothetical windfall to a billionaire because a disproportionate amount of capital gains benefits accrue to the super wealthy. Every study shows that.
Progressives mounted a last-minute lobbying effort in committee against Carter's bill, yet another tax cut heavily tilted to benefit the wealthy. Earlier today, the same committee passed Republican Rep. Charlie Collins' income tax plan that will deliver most of its benefits to the rich and scant to no dollars for the poor. At the same meeting, it rejected tax relief targeting low-income people.
The lost revenue from Carter's tax cut is needed for essential services, even if it comes from projected future growth because of how strapped those services are, said a spokesman for the Arkansas Advocates for Children and Families. "It is not in the best interest of the state," he said. He noted the amendment couldn't be thoroughly analyzed because no one had been able to see it until this afternoon.
Brett Kincaid of the Advocates recognized the pressure for tax cuts this session, but lamented the windfall given the committee earlier to the wealthy and its refusal to help the poor.
Presbyterian preacher Howard "Flash" Gordon said a capital gains tax, especially in the context of other proposed breaks for the wealthy, was essentially immoral in its unfairness.
Carter's bill gives a preference to Arkansas investments. Revenue Commissioner Tim Leathers repeated constitutional questions about this under the interstate commerce clause. He also noted the revenue loss as an obstacle in budgeting. Leathers, in response to a question about the department's revenue loss figures, said there was no evidence on which to base the idea that the state would reap revenue from the cut by future investmens. He noted that the loss included gains for multistate corporate taxpayers who'd be free to take their windfall tax cut money elsewhere.
Carter took exception to critics, of course, and said his tax cut would help the "job creators." And trickle down on the less fortunate, of course. There's no evidence locally or nationally that capital gains tax cuts spur economic development. Quite the contrary.
No matter. Carter's bill was speedily approved on a voice vote.
For your reading pleasure: The Department of Finance and Administration rounded up some figures for me several weeks ago on tax return reports of gains by taxpayers in several years in Arkansas. In 2008, for example, 2,700 taxpayers with more than $500,000 in income accounted for more than half of the reported capital gains. A good two-thirds of the gains came from people making more than $250,000. They'll get a commensurate amount of the benefits. Let's hope they trickle upon us.
UPDATED SPECULATION: Maybe the sudden push for Republican tax cuts today was to get out ahead of a superior Democratic alternative that gives income tax relief and new bracket fairness across the taxpaying spectrum, not front-loaded for the rich. A smart governor would soon announce a preference for this kind of tax cut. In concert with Medicaid expansion of course. The governor is pretty sharp, but for now he says he's working with legislature on all alternatives.