If you follow the commercials, press releases and debates of Asa Hutchinson and Mike Beebe, you would think that the paramount issue in the governor’s race is who first or most wholeheartedly favored removing the state sales tax on groceries.
Okay, here is the record: Beebe was a little late getting on board the populist movement, but he beat Hutchinson to the punch. Hutchinson first said it was not part of his program because the voters of Arkansas already had spoken on the grocery tax in 2002 and overwhelmingly voted to keep it.
He might have added that it was the second decisive defeat of the tax repeal in 28 years. Voters supported the tax by a large margin in 1978 when an initiative petition put the question on the ballot.
But Hutchinson now says that he actually was thinking about it at the time and misspoke and that he now intends to try to remove the tax in one whack next year. Beebe says he would remove the tax in several steps so that it did not trigger a fiscal crisis. So Hutchinson says he is the real anti-sales tax man, not Beebe.
Such silly posturing must leave the voters bored. What would not bore them is a real analysis of this serious undertaking. To the surprise of sponsors of the repeal movement, Arkansas voters have twice studied the grocery tax and the consequences of repealing it and voted no when they were expected to vote reflexively against taxes.
We don’t particularly care for the tax because it is slightly regressive. Like the sales tax in general, it punishes poor people because it is assessed on every dollar of their income: If you’re going to repeal the tax on groceries, how about doing the same for shoes, diapers and school uniforms? Where do you stop?
For people with higher incomes, however, the tax on groceries is not even a nuisance. Neither the levy on groceries nor the sales tax in general burdens their purchasing power or their disposable income unless they are buying yachts and pricey jewelry.
Repealing the state grocery tax also would reduce the state’s general revenues by at least $200 million and maybe much more. Foodstuff is not separated in the state’s tax accounting, so no one has ever been sure of the cost. We know that it would be substantial.
That is why voters in 1978 and 2002 rejected the repeal: there was no alternative source of revenue proposed, and the loss would have affected education, health care for the elderly, corrections or other vital state services. Now it is supposed to be safe to remove the tax because the treasury has piled up a sizable surplus in an economy fueled for three years by low interest rates and a real estate boom.
Beebe is the smarter on this point. He has been around the government in boom and bust cycles and knows that this year’s surplus is next year’s deficit. He wants to go cautiously, peeling off a couple of pennies of the 6-cent state tax at first, then phase the rest out while the budgets adjust.
Hutchinson is used to dealing with taxes and spending in Washington, D.C., where you need not worry about bleak future economies because you can always borrow a couple hundred billion dollars from the central bank of China when income runs low. President Bush and the Congress controlled by his party (Hutchinson was part of it) slashed taxes on high incomes and corporations and then saw the treasury surplus disappear and historic deficits take their place. But Gov. Hutchinson will not be able to do that. It is a civil offense to unbalance the budget in Arkansas.
There is an even better course than Beebe’s, though neither he nor Hutchinson nor the legislature is apt to take it. Rather than exempt everyone from the grocery tax, including the billionaires and their extravagant tastes, why not apply the repeal only to families with incomes of, say, less than $45,000, or some higher figure? It could be done through tax rebates, like the federal earned income tax credit (EITC).
State tax administrators will complain that it would complicate tax administration and put some small burden on taxpayers who would have to send in a form to claim their grocery rebate or EITC. Gov. Bill Clinton agreed with organized labor to do that when he had the legislature raise the sales tax in 1983, but then he welshed on the agreement. Information technology has made the task much easier now.