Columns » Warwick Sabin

Who’s afraid of taxes?

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It is understandable why Americans are a little touchy when it comes to taxes. After all, our independence movement owes its spark to a protest against a tax on tea. But once again Arkansas faces difficult choices about how to fund basic services and important priorities. The mystery is not how much we need to provide adequate education, health care and infrastructure. Rather, it is where to find that money. Of course, the answer is simple, but our politicians choose to ignore it. A government gets the bulk of its revenue through taxes, and until we create a more effective taxation system that corresponds to what we want to achieve as a state, we will continue to cut corners on everything that is important to us. Yes, I know: it’s April. No one likes to pay taxes, and I am not advocating for an oppressive tax system that restricts growth. But precisely because taxes inspire so much heated emotion, they are rarely discussed openly and rationally. Ultimately the solution is going to depend on how we talk about taxes. Years of anti-tax rhetoric — much of which was justified in the face of reckless government spending — have created an atmosphere in which tax cuts are a universal good, and no politician can ever even whisper a word about raising taxes. It helps to begin by remembering what taxes actually fund. This year in Arkansas, 89 percent of our state’s general revenue will be directed toward education and health care. There aren’t too many people who think Arkansans need to be less educated or less healthy than they already are. If anything, we would benefit by investing more in those areas — and the state Supreme Court is mandating that we spend whatever is necessary to provide an equal and adequate education to every child — but we can barely afford our current outlay. Part of the reason for that is our dependence on the sales tax, which accounts for 49 percent of the state’s general revenue collections. Many people throughout the years have pointed out the inequity of Arkansas’s reliance on the sales tax, which places an enormous burden on the poor, who lose precious dollars and cents when they purchase their most basic necessities. But it also doesn’t make sense as a matter of simple economics. The only way Arkansas can improve its standing is by providing better education. And a poor state cannot raise enough money to do that through the purchases of its poor citizens. So where will we find the money? Some people actually advocate reducing taxes even further, so that more businesses will come to Arkansas. They say that will increase the overall tax base. But is that really true? There does not seem to be a correlation between economic vitality and state tax rates. States like New York have plenty of commercial activity and a high tax burden. States like Wyoming are struggling and have a low tax burden. So it is clear that companies do not decide to locate in a particular state solely for the tax benefits they may receive. Tax incentives can be a sweetener for a deal, but more important is the quality of the workforce and other factors. A tax break is like sex. If you give it away too often, people are going to wonder what is wrong with you, and they will want you less. Indeed, here in Arkansas we think we can distract from our deficiencies by making our state cheaper. Not only are we offering money to entice companies to come here, but now we have reached the point where our native industries are demanding tax breaks just to stick around. For example, the legislature this month passed an $11.5 million tax break for the timber industry, even though our trees aren’t going anywhere. If we keep turning away the small amount of public money we already have, how can we ever improve the basic services that will make us more attractive in the long run? We need to have a coherent plan. Let’s make a decision to commit the resources necessary to improve education, at the very least, and then create a tax structure that will generate the revenue required to accomplish that. Elected officials need to accept their responsibility to explain to their constituents that taxes are not always evil. In fact, taxes exist to marshal resources for the common good, and they can be a wise civic investment. In the end, a more educated populace will attract more jobs than any tax giveaway ever could. And the companies that come here will respect us in the morning.

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