Columns » John Brummett

Thanks, but no thanks, on the super sales tax



Brandon Woodrome, a 22-year-old construction businessman, and Jett Harris, a minister with whom Woodrome was close, were together on a Fort Smith Baptist church's youth retreat several months ago.

They got to talking about the unfairness of the tax system.  

So on Friday they won the attorney general's approval of their popular name and ballot title for a proposed state constitutional amendment. Pending the gathering of signatures, a steep undertaking, they presume to offer their idea for our potential voter consideration in November.

They would do nothing less than turn taxation inside out and upside down in Arkansas.

This is the “flat tax.” The concept is to do away with all these complex state taxes on myriad items and activities and tax people merely at one place and only on what they buy. Call it a super sales tax.

The theory is that the utter simplicity would be a virtue. It's that people would be taxed not as they got richer or acquired more assets, thus partaking in the American dream, but only when they chose to make purchases.  

The problem, the unfairness, is that the low-income working man doesn't exactly choose to make purchases. Sometimes the old car quits running. Sometimes the refrigerator goes out. Sometimes the kid outgrows shoes.

The unfairness is exacerbated by the fact that this proposal specifies that this super sales tax would apply only to consumable goods and services. It would not apply to intangible property, including financial holdings.

Thus the tax burden would shift even further — just when we thought it couldn't possibly — from the fortunate man to the unfortunate one.

To be fair, the proposal endeavors to address that. It provides the we would figure out the annual amount of the tax charged to basic services that compose the federal poverty level calculation and then remit that amount up to that poverty level to all taxpayers in 12 monthly increments.  

It's called “prebate.” The idea is that it would relieve a greater proportional burden on poor people than rich people.

That still would mean, though, that the working man buying a new icebox under duress would be hit for an inordinate capital outlay for taxes. And the other guy's capital gains would be unscathed.

This amendment would invalidate all taxes currently levied by the state legislature. Counting general revenue taxes and highway taxes, a new single sales tax would have to raise more than $5 billion annually to hold state government fiscally harmless.  

That might mean a sales tax of 20 percent on that poor guy's refrigerator.

Woodrome tells me that he is getting expert economic advice on all this. “We're not just a couple of rednecks with a spread sheet,” he said.

He asserts that the new sales tax rate might be no more than the 6 percent currently levied, or maybe no higher than 8 percent. And how does he figure that?

Well, he explains, the new flat tax would apply to the more than 5,000 goods and services now exempt from the sales tax.

Thus Woodrome argues in one breath that adding new sales taxes on those 5,000 goods and services would be fair. Then he argues in the next breath that it would be fair to tax that working man's new refrigerator because all the seller's embedded taxation expenses would have been taken out of the equation and spared the purchaser.

But you can't really have that both ways. Most of those current sales tax exemptions are for manufacturers and businesses, who might be expected  to pass them on.

This new flat consumption tax would include groceries. So Gov. Mike Beebe's highly popular incremental drawdown in the food tax would be undone, superseded. That alone ought to kill the proposal politically.

This, while surely well-intended, is a radical proposal that sounds better than it is.

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