With the state government suddenly sitting on a surplus of $125 million, about 2 percent of the state budget, there was the inevitable cry for tax cuts or for sending part of the money back in tiny checks to lots of taxpayers.
Gov. Huckabee mentioned tax cuts first, co-opting the idea in case it gets a head of steam. But first, he wants to set the current surplus aside for a rainy day and consider tax cuts only if the cash gets so deep at the Capitol that the state can’t find a good use for it.
Huckabee is seasoned enough now that he knows that all the money, and more, will be needed before the cock crows thrice. Nine years ago, fresh in office, he didn’t. The booming Clinton economy was pulling cash into government treasuries everywhere and Huckabee wanted to establish his reputation as a tax cutter. The legislature in 1997 obliged although with a progressive income tax-cut plan left behind by his predecessor, Jim Guy Tucker.
Since then, it’s all been tax increases, mainly sales taxes and motor fuel taxes paid by working people. The net result of nine years of tax fiddling is that the load on working families is just a little heavier, that on the rich a trifle lighter. Another cycle of tax cuts and increases will shift the burden even more. That is the inevitable part.
It was inevitable, too, that the tax-cut boomlet would be launched in the name of economic development and the creation of jobs. A ranking House Republican said the revenue binge was a good time to cut business taxes. The big automobile plants that Arkansas has been chasing for years keeps going elsewhere, the latest to Canada, where workers are better educated and enjoy cradle-to-grave health insurance. So, as the theory goes, the secret to enticing them to Arkansas is reducing the heavy taxes on corporations.
If the burden of Arkansas history proves only one thing, it is the nonsense of that notion. That low taxes produce business growth and high taxes stymie it has been the central premise of Arkansas politics since 1874, when the bourbon Democrats tossed out the tax-and-borrow Republicans at the end of Reconstruction and took over the government uncontested for 100 years. For the first quarter-century, each legislature and governor tried to outdo their predecessors in cutting taxes or making arrangements for tax assessments to be kept low, so as to put out a welcome to out-of-state investors and keep the railroads, utilities and big farmers from leaving for greener pastures.
For virtually the whole wretched span of a century after the bourbon takeover, politicians promised a renaissance as soon as manufacturers saw how friendly Arkansas was with its invisible taxes and union-free workers. Sure enough, for the full century and longer Arkansas had the lowest state and local taxes in the United States — absolutely the lowest.
In the mid-1930s, the Franklin Roosevelt administration was incensed because the federal government was carrying almost the entire burden of providing relief for this one state, and it threatened to cut off federal assistance if Arkansas did not raise and do something for its people. The result was the first penny of sales tax on necessities and a few liquor taxes.
If low taxes were so vital to American business, Arkansas would have been the most industrialized state in the United States by World War II. But it was the least. Year after year and decade after decade, per-capita incomes were the lowest or next to lowest in the nation.
From time to time, a governor — Donaghey, McRae, McMath, Bumpers, Clinton — without the benefit of a federal threat would get a little tax through the legislature to pay for schools or tuberculosis sanatoria, but it rarely lifted Arkansas to next-to-last in per-capita tax burden. Industry and high-wage jobs went to states that taxed and built great educational programs, universities and infrastructures.
In 1965, after Orval E. Faubus raised a few taxes, Arkansas ranked 50th in state and local taxes, $159 per person a year. By 1975, after Winthrop Rockefeller and Dale Bumpers had persuaded the legislature to raise a few taxes, Arkansas was 50th.
In 1978, as Bill Clinton was taking office, Arkansas ranked 50th, only 62.3 percent of the national average. Taxes with an initial impact on business, regardless of whether business passed them on to consumers, accounted for 27.6 percent of all taxes in the state, a percentage that had been declining since the mid-1950s and that would continue to fall for the next 25 years.
Clinton raised taxes for education, sales taxes for schools and a corporate income tax for colleges, which was followed by a surge in manufacturing growth. For a time, Arkansas led the states in creation of manufacturing jobs. Go figure.
But by 1996, after the Clinton era had ended and Mike Huckabee was installed, Census Bureau figures showed that, yep, Arkansas taxes were again 50th. When measured against the ability to pay, the state ranked 44th.
Under Mike Huckabee, Arkansas has moved up quite a few notches on state and local taxes per person (wait until his opponents in the presidential race in 2008 get hold of that!). Industrial jobs are vanishing and jobs and median incomes aren’t rising, but at least Huckabee can boast that the balance of the country is doing no better and lots of it worse.
He has learned that when you run a low-tax state, cutting taxes is something you only talk about.