Tax Justice Digest stories about Arkansas
Arkansas Governor Mike Beebe has called a special session starting Monday to consider a higher severance tax on natural gas. The Governor says that the tax hike will eventually raise as much as $100 million to help pay for state highways. The current level of tax was established in 1957 and is based on the volume of gas extracted. Beebe's proposal would change the tax base to market value, bringing Arkansas in line with what most states have been doing since the 1970s. Basing the tax on market value would ensure that inflation will no longer erode the value of revenues generated by the tax, which is currently providing natural gas companies with an effective tax cut each year. A 2003 ITEP study of the Arkansas natural gas tax found that if the state had imposed a 5 percent tax on the market value of natural gas in 1975 (rather than basing the tax on volume) the state would have raised $610 million between 1975 and 2001, instead of the $13 million it actually collected. For more on the state's severance tax and potential reforms read this report from Arkansas Advocates for Children and Families.
Higher severance taxes may soon be on the agenda as well in Colorado, where environmental groups and higher education advocates have banded together in support of a ballot initiative to generate $200 million in additional revenue from the oil and gas industries. The proposal would eliminate several severance tax deductions and exemptions, the most notable of which allows companies to write off 87.5 percent of their property tax bills. The revenue generated would go to fund college scholarships and renewable-energy programs, among other things.
Four states — Mississipi, Tennessee, Arkansas, and Idaho — are currently debating ways to reduce the sales taxes paid on food. But how (or whether) to pay for the cuts and who should benefit remain key sticking points.
On Thursday, the Mississippi House of Representatives passed (91-27) a "tax swap" bill that would cut the state's sales tax on groceries in half and raise the tax on cigarettes to $1 per pack. The bill still faces significant challenges before becoming law, however, since key members of the Senate oppose it and Governor Haley Barbour vetoed a similar bill last year. Although the plan's reliance on revenue from cigarette taxes is not a long-term solution, it does offer a temporary mechanism to make up the revenue that would be lost from a cut on the sales tax on food.
In Tennessee, a similar "tax swap" is under consideration. However Gov. Phil Bresden has expressed reluctance to link a cigarrette tax increase with a grocery tax reduction, and has instead proposed using revenue from a cigarette tax increase for education funding.
Arkansas Gov. Mike Beebe signed a grocery tax reduction into law on Thursday that will reduce the state's sales tax on groceries from 6% to 3% effective July 1st. However, no funding mechanism was enacted to make up for the decreased revenue, as lawmakers instead decided to rely on a projected surplus to pay for the proposal.
In Idaho, Gov. Butch Otter continues to struggle with the state legislature over how best to enact a grocery tax credit. Otter's proposal would target low-income Idahoans with a credit of up to $90, while the House's newly passed version would give a smaller grocery tax credit (up to $50) to a broader range of residents.
Arkansas Governor Mike Beebe and the state senate worked together this week to pass a series of measures aimed at helping low-income Arkansans. The keystone of the tax package was a cut in the state sales tax on groceries from six percent to three percent, one of Governor Beebe's leading campaign proposals. A study by the Arkansas Advocates for Children and Families (AACF) projected annual savings for a family of four ranging from $98 to $298, depending on income level. The Governor's Office estimated that the sales tax change would cut state revenues by $252 million this year. Everyone involved in the effort to pass this bill deserves high praise for bringing attention to this important issue. However, research by the AACF using ITEP data indicates that a refundable Earned Income Tax Credit might be an even more effective way to help low-income Arkansans. According to the data, a 24% refundable EITC would cost almost exactly the same as the grocery sales tax exemption, but would provide more assistance to families in need. Arkansas lawmakers should consider a refundable EITC to get the most bang for their tax bucks.
Several states are debating ways to spend budget surpluses. Arkansas Governor Mike Huckabee has "tax reformation" plans which include putting more money in a rainy day fund and rebating money to taxpayers in the form of a tax credit. In response to the surplus in Idaho, legislators are debating ways to shift the tax burden from property taxes to regressive sales taxes. North Carolina legislators are taking notice of the financial hit that mental health services took during the previous recession and both houses have passed budgets that would provide more funds for these services. Of course, if any of these states had a Colorado-style TABOR policy there wouldn't even be a question about how to spend state surpluses because TABOR takes these important budget decisions out of the hands of elected officials.
