Columns » Ernest Dumas

How to help the poor

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Judging from all the lamentations about the burden that grocery taxes impose you would assume that the poor are suddenly in fashion and that the state government is going to ride to their rescue.

People and organizations that normally are concerned about the other end of the income spectrum now want the state to remove its heel from the necks of the poor by repealing the sales tax on groceries. The overriding issue in the governor’s race in the end was who was the most earnest about wanting to end the tax. Gov. Huckabee, who never endorsed repeal bills, said he and his party’s nominee, Asa Hutchinson, were the real champions of ridding the poor of the tax. Gov.-elect Mike Beebe says he will ask the legislature to repeal the tax in stages.

That little relief still may not happen. The speaker-elect, Benny Petrus, says he will push instead for tax relief that will stimulate economic development, which usually means tax cuts for people in high incomes. They are ones that, legend has it, spur development by investing their tax savings in job-creating enterprises. The biggest test in history of that theory, George W. Bush’s mammoth tax cuts for corporations and the wealthy, produced the worst jobs record in modern times.

But Petrus says that although he is not enamored with the idea of cutting the tax on groceries because his income group does not need the relief he does want to help poor working families through some kind of income-tax relief, perhaps a tax credit for the working poor.

The poor could use some help. Their circumstances have worsened the past 10 years in Arkansas despite a couple of small steps by the government — a modest amount of income-tax relief that took effect in 1999 and the legislature’s panicked enactment of a higher minimum wage this year when it looked like the wage floor would be raised automatically by the Constitution. Sales taxes have been raised by a third since 1998 and big increases in gasoline taxes and cigarette taxes have eroded their spendable income. That is just the state government’s role. The cost of utilities, including the taxes on them, are exploding.

But the truth is that lowering or abolishing the sales tax on groceries will not help a lot. That might ultimately eliminate some $250 million of taxes, but little of savings will go to the poor. All of us, the middle incomes and the wealthy to boot, will be helped far more than the poor. The very poorest, who acquire their foodstuffs with food stamps, do not pay the tax now on most groceries and will get little benefit.

That may explain the ardor of those who ordinarily do not champion the government efforts to lift up the poor. It is the elimination of tax receipts that is important, not its impact on the poor. Anything that reduces the government’s income and its ability to provide services is considered good.

If helping the poor really is the goal, there are better ways than eliminating the sales tax on groceries.

The easiest would be to eliminate income taxes on families that are below the poverty line, or better still those who are 125 percent of the poverty line. The legislature thought it was eliminating that tax in the omnibus income tax reductions enacted in 1997, but it did not get the job done.

A family of four last year started paying income taxes when it earned $15,900, well below the poverty line. Its tax bill when it reached the poverty threshold would be $406. Eliminating that tax would be more relief than phasing out the tax on groceries. In California, by the way, people do not start paying income taxes until their family earnings hit $40,500.

A single mother with two children earning poverty-level wages paid the state $126 in income taxes.

Eliminating taxes for the poorest working families by supplying low-income credits for those with incomes up to 125 percent of the poverty line would offset higher transportation, child-care and utilities costs and go a long way toward making work pay. It would be administratively easy for the state and prevent the big revenue loss that is apt to haunt the state in the next three years. Remember that after the last personal tax cuts took effect in 1999 and the state slashed taxes on capital gains, the government soon found itself scrambling to pay the bills and looking at tax increases or reductions in services to the poor. An eventual result was higher taxes with an exaggerated impact on the poor.

Making the tax credits refundable for workers even above the poverty line through an earned income tax credit (EITC) similar to the federal credit would put Arkansas in the ranks of states that treat their hardest-working families humanely.

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