Saturday, January 21, 2017

The Legislative Session on Taxes So Far

We are about two weeks in to the Arkansas legislative session. 2015 was the first session in which we had both dominant Republican majorities in the legislature and a Republican in the Governor's office. Now not only do we have all that to an even stronger degree, but they have had experience being in charge. What I see overall is that Governor Hutchinson is tightening his control over the legislature. The "leadership" in the Republican legislature is tightening its control. 2015 was the wild west by comparison.

In 2015 the Republican majority was still slim enough that Hutchinson needed the Democrats to join him against the true conservatives in his own party in order to get things through various committees and get passed. Now they are marginalized. He does not need them any more. 
When the Democrats were the majority, Mike Beebe ran a very tight ship- too tight for my comfort because the legislature can get demoted from a co-equal branch of government to a rubber-stamp. As a Republican Governor attempts to tighten control I see the same thing happening. As a localist I dislike the centralization of political power into fewer and fewer hands, so I would be for almost any renegade faction that showed up and tried to return some power to the rank and file members of the legislature.
To show you how the unitary party system causes legislators to abdicate from their responsibilities here is a quote from Hot Springs senator Bill Sample on his view of SB 115. 
"“If it were Bill Sample doing business, I probably wouldn’t do it,” Sample said Friday. “But this is the governor’s bill and his call, and he says we can afford it. If something comes up [with the tax cut], then he’s the one that has to answer the question. But I am going to vote for it.”
So the individual judgment of the man the people elected to vote on laws is out the door, and the new way of doing business is to vote the way the Governor wants no matter how you feel about it. Sounds just like what the Democrats did under Mike Beebe.
To unpack the tax policy of the Republicans I think we need to go back a bit in time. The Beebe tax policy could be summed up as "Look for isolated groups of people to loot by massively raising their taxes in order to fund a tiny tax cut or some benefits for a much larger group. Take political credit for "cutting taxes" with this move." He did it with the natural gas severance tax and he did it with the tobacco tax. That was Beebe's SOP, and it is also Asa Hutchinson's SOP. The winners and losers change but the tactics are identical.
In 2015 the Republicans in the legislature took credit for a "middle class income tax cut". I told you at the time "there has been no middle class tax cut, at least not yet". I suspect that there never will be. All they did was raise capital gains taxes immediately and cut a microscopic amount from income taxes at first, with an order to decrease them more later. They paid for their 2015 tax cut by reversing their 2013 tax cut- at least for all but the very rich who had over $10 million in capital gains.

So the net effect of their tax changes last time could be described like so: It gave your parents an extra $200 bucks a year in income tax reductions but when they retired and sold their house the state got it all back in capital gains tax increases. On the net there was no middle class tax cut, Republicans simply harvested the political credit for passing the illusion of one. Since they later slipped in a measure which eliminated capital gains on gains in excess of ten million dollars, the main group that got a net tax benefit from those maneuvers are entities with capital gains over that amount.
In 2017 the plan is to give all Arkansans who make less than $21,000 a year a tax break, but to pay for it largely by increasing sales taxes on manufactured homes. Right now sales taxes are only paid on 62% of the price of the home- they want to raise it. If you think about it, they are already disadvantaged because we don't pay sales taxes on regular houses. That is going to be a crushing blow to the manufactured home industry in Arkansas - which is just the kind of housing that poorer Arkansans have to resort to if they are to own their home at all. It is not like these same folks can afford traditional homes which cost considerably more. If I had the time to check the campaign finance reports, it would be my guess that the home builders associations gave a ton of money to the Republicans and the Manufactured Homes association interests gave more to Democrats.
The plan will turn potential manufactured home owners into renters- in a state with the most landlord-favorable laws in the nation. Landlords will win. Arkansans who work in the manufactured home industry or poorer Arkansans who aspire to own a home will lose. Would you trade a reasonable chance to go from being a renter to a home owner for $150 a year tax cut? This is a tax cut designed to keep the poor poor.

As bad as that is, I think I am saving the worst for last. I don't see government shrinking in size or power due to this plan. The bill (SB 115) will establish a panel to determine what income tax policy ought to be going forward. In other words, that decisions will be taken out of the committee system and the judgment of individual legislators and handed to this committee. So if I say to my legislator "I want you to support X as a tax policy" they can just shrug and say "its all up to this committee that you don't vote for what the policy will be."  Then again, if the legislators are all like Sen. Sample then they are in a hurry to defer their judgment to the Governor anyway.


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