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Editor/Founder: Bill Smith, Ph.D. [aka: OzarkGuru & 2010 AFP National Blogger of the Year]
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One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors. -- Plato (429-347 BC)

Friday, December 19, 2014

New Day In Arkansas: Fiscal Policy Recommendations For Arkansas

On Tuesday, January 13, 2015, Arkansans will celebrate "A New Day in Arkansas" when Republican Asa Hutchinson is sworn in as Governor and Republicans are sworn for "every" Constitutional Office in Arkansas. In addition, the Republicans will be in greater control and thus have more responsibility in both chambers of the legislature. When Arkansans voted they also had expectations.  They were and are looking forward to positive changes in how things are done across the board by state government. In addition to expecting a rollback in taxation and in government control of people's lives, Arkansans want "a wall of separation" maintained by their state to protect them from the excessive programs of various Federal agencies both now and into the future. The below article by the Arkansas Policy Foundation suggests "fiscal policy recommendations." However, this is only a beginning of many recommendations that the people of Arkansas have for prudent policies for our new administration. One of the greatest things this new administration can do is to lead in manner which believes in and supports the core values and decency of the majority of Arkansans. ~ Dr. Bill Smith, Editor

Greg Kaza, executive director,
Arkansas Policy Foundation, an
economic think tank in Little Rock
by Greg Kaza, Arkansas Policy Foundation: Prudence should guide fiscal policy. Public services should be provided in an efficient, cost-effective manner. Savings should be used to encourage economic growth and make Arkansas competitive in terms of jobs creation and income growth. The Murphy Commission, a Policy Foundation project spent three years (1996-1998) studying state government before advancing ideas to make government cost-effective and accountable to taxpayers. Several ideas have advanced, including a performance-based budgeting pilot, and income and capital gains tax cuts. But more needs to be done.

Declare a Jobs Emergency
Incoming Gov. Asa Hutchinson inherits a weak labor market. Nonfarm payroll employment is the broadest state level indicator. Total Arkansas NPE was 1,201,200 (January 2007) and 1,195,300 (October 2014). U.S. employment increased 1.3% in the same period, U.S. Bureau of Labor Statistics data show. Governors have little influence over some policies1 that affect jobs. But they can lead in areas such as tax policy and regulation.

Continue Reducing the Capital Gains Tax
Some policymakers have recognized for 15 years that Arkansas fiscal policy discourages capital investment. After the Murphy Commission, the 82nd General Assembly (1999) approved a measure by state Sen. Jim Hill, D-Nashville, to exempt thirty percent (30%) of a capital gain from the state income tax. The Fluor GLS report, commissioned by the Assembly, also noted Arkansas' competitive disadvantage. The 89th Assembly cut another twenty percent (20%). The tax (3.5%) should be phased-out over a decade so Arkansas can compete against low-tax states with higher jobs creation.

Reduce the Income Tax Rate
Arkansas has the highest income tax rates of any border state.2 Mr. Hutchinson has proposed a middle-class tax cut, lowering the top rate from seven (7%) to six (6%) for those earning between $34,000 and $75,000.3 The proposal, advanced as an idea to spur jobs creation has greater potential to grow income. Arkansas per capita personal income increased from 78.4% (2007) to 82% (2013) of the U.S. after the grocery tax was cut. PCPI stagnated between 75.4% (1983) and 77.4% (2006) of the U.S. after sales tax and spending increases that failed to deliver much income growth.

An overlooked factor is the state of the business cycle. Arkansas general revenues tend to expand in national expansions and contract below trend in recessions, with a lag. Use of a trigger mechanism that reduces or freezes tax cuts in recessions, while funding vital services, is prudent public policy.

Dynamic Analysis
Dynamic analysis is an attempt to measure the full impact of tax proposals, on revenue estimates. It can also provide legislators with more information when considering proposals. One example is the 2008 severance tax increase: the static analysis failed to consider a decline in natural gas prices.

Activities-Based Costing and Performance-Based Budgeting
Activities Based Costing should be linked to the state's accounting system with spending tied to costs and measurable performance outputs. Performance-based budgeting, discontinued after a 1999 pilot program should be reconsidered. Mr. Hutchinson should name a performance director and volunteer advisory group for oversight purposes. ABC can be a vital management tool if tied to performance outputs and reporting to Arkansans. State constitutional offices would benefit from these reforms.

Deregulate Policies That Harm The Poor, Reevaluate Quick Action Fund
Poor and low-income households should not be punished by laws that prevent gainful employment. One example are restrictions on hair braiders. The $50 million Quick Action Closing Fund, by contrast, serves the politically-connected and trails the U.S. since its inception.4 The guiding policy should be low rates for all businesses, not taxpayer-funded privileges.

1 Arkansas and U.S. data seasonally adjusted.
2 Governors can praise or question International trade and monetary policies but they cannot lead in these areas.
3 State Individual Income Taxes (rates for 2014, as of January 1, 2014): Arkansas (7%); Louisiana and Missouri (6%); Oklahoma (5.25%); Mississippi (5%); Tennessee (dividends and interest only); Texas (no tax). Federation of State Tax Administrators.
4 Gov.-Elect Hutchinson has also proposed cutting the 6% rate to 5% for those earning between $20,400 and $33,999 annually.
5 Payroll employment: (Arkansas) 1,202,000 (July 2007) to 1,194,000 (September 2014); U.S. 137,984,000 to 139,466,000.

Tags: Arkansas, Fiscal Policy Recommendations, New administration, Governor Asa Hutchinson, Greg Kaza, Arkansas Policy Foundation, Bill Smith, expectations, New Day in Arkansas, wall of separation,  To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. and "Like" Facebook Page - Thanks!
Posted by Bill Smith at 8:10 AM - Post Link


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