To be chronically poor and in the backwaters has sometimes seemed like a blessing because our modest state government has not been in nearly as much distress as northern and coastal states where there has been talk of defaults, government shutdowns and sheer cataclysm.
The worst economic conditions in 70 years may feel mild if you had little to give up in the first place. Because Arkansas has little manufacturing and little production of goods and services that are affected when global demand goes slack, unemployment rose only a little more than a couple of percentage points in nearly two and a half years of a nationwide freefall.
State government also has had to trim spending a little, but the pain has been more in the postponement of promised benefits than the curtailment of services. Governor Beebe looks frugal and wise and remains hugely popular because unlike Gov. Arnold Schwarzenegger and others he has not had to take unpopular steps.
There is a partial explanation that no one in the government or the political arena wants to talk about. More than nearly all the other states, Arkansas depends upon that genial but hated old spendthrift, the U.S. government. While the once rich coastal states have to bear half the costs of nearly all the life-giving services that the state provides to needy elderly, children and the disabled, Arkansas puts up only one dollar to the feds' three. Since more of our people — nearly a third of the population —fall into that unfortunate lot at some time, the federal government is an economic lifeline in Arkansas as in only a few other states.
As I have pointed out before, the new health care law will be an entirely new bonanza for Arkansas, contrary to the hand wringing of the governor and a couple members of the congressional delegation.
Arkansas has not had to make any reductions yet in services to the 775,000 people who receive some form of medical assistance or rehabilitation partly because federal stimulus allotments to the state have kept the Medicaid Trust Fund healthy. It has protected or created tens of thousands of jobs and provided the margin of life for thousands more.
When the Republicans and the Tea Party crowd rage against the stimulus and federal spending, remember that they are not talking so much about Connecticut or New York, Michigan or Ohio, but about severing the pipeline that keeps the Arkansas economy and social order afloat.
But the point of all this is that a reckoning is at hand, as early as the next fiscal year. It will not be so wrenching — and politically risky for the governor — if the Obama government renews stimulus and special Medicaid assistance after this year, but the state government is not going to look so providential for long. The political leadership will have to make some unbearable cuts or else do the currently unthinkable, raise taxes. The latter looks to be next to impossible in an ugly political climate.
The federal and state governments took a series of steps to erode the state general revenue tax base, including the popular reduction in sales taxes on groceries. The most fiscally imprudent was the elimination of the 100-year-old tax on big estates.
President Bush and the Republican Congress, with the help of Arkansas members except Rep. Vic Snyder, repealed the federal estate tax and, with it, the Arkansas tax. The 2001 law confiscated the estate taxes collected by most states for the U.S. treasury by phasing out the federal credit for state taxes, which improved the federal government's bottom line. The Republican House of Representatives in 2003, with the help of Arkansas's delegation except Snyder, tried to make the estate tax repeal permanent in the belief that the most privileged people in America, those who inherit great fortunes, should not pay taxes like other people do on their earnings.
This year, there is no federal or state estate tax. Arkansas collected its last estate taxes, a trifling amount, in 2008. But the 2001 federal estate tax and presumably the credits for state-level taxes will resume next year unless Congress and the president enact a different kind and level of estate tax.
But unlike nearly all the other states Arkansas will get none of the resurgent taxes when the estate tax is restored because the legislature and Gov. Mike Huckabee repealed the state tax permanently in 2003. The state has missed a couple hundred million dollars since 2002 — $127 million in 2003 alone — and it will lose hundreds of millions more in the years ahead, all of it going to the federal government. If the state levied the estate tax again, heirs would not pay a dollar of it because the Arkansas tax would be credited against the federal tax liability.
You would think that it would be a no-brainer for Arkansas legislators: Levy the tax and take our share back from Uncle Sam. But a different philosophy prevailed in 2003: Giving a free ride to the lucky rich is a matter of principle.
Every Republican running for state and legislative office in Arkansas is pledging never to vote for a tax of any kind. Common sense and ordinary prudence will play no role in it. Republicans will control a third or more of the legislative seats next year, which will make it impossible to restore the tax since it will take 75 percent of both houses.
Meantime, the chamber of commerce and manufacturers will be back next year to finish off the sales tax on industrial power and who knows what else. No session of the legislature ever passes without eroding the gross-receipts tax base.
The federal government has always come to our rescue. Maybe it will again.