Columns » Ernest Dumas

Bud Canada's quest

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Bud Canada can now die happy. Whatever else happens as a result of the election, the state sales tax on groceries, which Canada spent a long state Senate career trying to repeal, will begin to perish this winter.

The question is, will the Arkansas tax system, one of the harshest in the country, be fairer? The answer is some but not much.

Every time that the legislature passed another sales tax exemption for one industry or another — on livestock and chicken feed, for example — Canada arose to note the perverse irony of taxing food off poor people’s tables while rushing to enrich special interests by removing a little tax from their accounts.

But Mike Beebe, who had helped Canada pass his grocery exemption in the Senate, ran for governor on that issue. So did Asa Hutchinson, though belatedly. And so did Jim Lendall, the Green Party candidate, who had the better claim on the issue. Grocery tax repeal was, like Canada’s, his signature issue when he was a representative.

Gov. Mike Huckabee also weighed in against Beebe on the issue, suggesting that Beebe was faithless on repealing the tax because he was a leader of the legislature and didn’t get it done. But Huckabee was the faithless one. He publicly said he was opposed to the tax but when big grocers let his office know that they liked the tax, he quietly bailed. (Big retailers bank and collect interest on sales tax receipts, which are not remitted to the state until the next month, and they keep permanently a portion of the taxes as a commission for collecting them. They’ll be lobbying again in January to keep the tax.)

But the point is, although it has been a cause of progressives for 40 years, how unfair is the tax? Arkansas is one of only three states that impose the full tax rate on groceries.

It is the sales tax, not simply its application to groceries, that is regressive, especially since Arkansas now imposes a higher rate than most other states and exempts so many industrial purchases. The grocery tax is not quite as punitive as it once was because the very poor usually do not pay it except on snacks. The very poor who receive food stamps (roughly 300,000 Arkansans) do not pay the sales tax on those groceries and the tax is not collected on food bought under other government nutrition programs such as the Women, Infants and Children program or food programs for seniors.

Taxing groceries is not inherently unfair. Why is it so unfair to make Don Tyson or Jim Walton pay a tax when they buy a slab of porterhouse or for that matter taxing the food purchases of an old guy living on Social Security and free-lance earnings? They do not feel it.

The sales tax is regressive because low-income people pay it on virtually everything they buy and thus pay a much higher share of their income in taxes than do the wealthy. The poor do not have extra disposable income that they can spend on untaxed services or on investments. They don’t play golf or spend on commercial entertainment. It matters little which merchant they pay the taxes to — it’s the cumulative total of the taxes every week that hurts.

And where do the poor gain if they do not have to pay taxes on groceries but pay elsewhere with a higher sales tax rate or through the loss of government services like health care when the state has to cut back?

Here would be a better solution, which would preserve the revenue base: Provide a refundable income tax credit for the calculated amount of grocery taxes paid by families below a certain income ceiling. Gov. Bill Clinton promised the AFL-CIO in 1983 that he would do that in exchange for labor’s not opposing his sales tax increase, but Clinton welshed on the deal. Bill Becker, the union chief, never spoke to him again.

It would be hard to administer, state tax administrators say, and people would not like it because they would have to fill out a form to get the rebate. They would like it, just not as much. Another suggestion, by Arkansas Advocates for Children and Families: a state earned income tax credit like the federal’s, which would reimburse the poor for the grocery taxes and more.

That won’t happen, so the repeal of the grocery tax for the Waltons and all the rest of us is the next best thing. It’s supposed to be doable now because government revenues are running well ahead of spending and the state can do it without cutting services. That situation will not last long, and the state, and the poor, will miss the money from the lost tax.

And here is a partial solution to that: Raise the severance tax on natural gas (the Arkansas tax rate is by far the lowest in the world) before the exploration companies get their drill bits into the Fayetteville shale. Now, that is a fair tax and a moral debt to generations who will lose a finite resource that belongs to everyone. Gov. Beebe?


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