Friday, March 11, 2011

EDITORIAL >>Lobbyists win again

Elections come and go, Republicans gain and Democrats falter, but one thing never changes about the Arkansas legislature: its ultimate constituency. It isn’t the average working family and it isn’t the small Arkansas businessman. One guess on who it is.
There are always a few bills that reveal all too clearly who a lawmaker will stand with when push comes to shove: big corporations. They fill the committee rooms with lobbyists, they supply the campaign checks, and they never lose a fight.

Any bill to tax or regulate the big exploration companies that take fortunes from the Arkansas earth will always meet the same fate in the legislature. Unless the exploration companies—Chesapeake, Southwest Energy, et al—support the legislation, it never gets out of committee. So it is this session with legislation to make the companies pay a little more severance tax on the gas they harvest to pay for a tiny part of the gross damage they cause Arkansas highways, land and streams, not to mention the earthquakes they may cause. The Highway Department estimated that the gas rigs in four years have caused $500 million in damage to highways and they pay a pittance in severance taxes. The little increase in taxes died in committee Thursday. Instead, Arkansans will pay more in sales and motor-fuel taxes to rebuild the roads for them.

Here’s a worse example: the corporate combined-reporting bill. Some brave legislator introduces it every session or so, but the lobbyists for the big multistate corporations bury it in the Revenue and Taxation Committee of the Senate or House of Representatives. It happened again Thursday. This time, Rep. Jim Nickels, Democrat of Sherwood, introduced the bill. His plaintive call to legislators to do something fair for the taxpayers and small businessmen in their districts was met with silence. Then the committee voted it down without a recorded vote. But the lobbyists were there to take note of anyone who muttered a yea half under their breaths.

Over the past two decades, the big corporate accounting firms have come up with a variety of ways for corporations that do business in all the states—big oil companies like Exxon, big retailers like Walmart, Home Depot and Toys R Us—to escape paying state income taxes or to reduce their tax liability to a pittance. You set up a subsidiary corporation in a state without a corporate income tax or a very favorable tax code—say Delaware or Nevada—and you assign your profits in Arkansas to the subsidiary, which may have nothing but a postoffice box in the tax-haven state.

 There are several ways to do it. You can set up a Delaware corporation that will own the company’s logo, and the subsidiary will charge the company’s operations in Arkansas a huge rent for using the franchise logo on its building or in its ads. It lets the retail operations in Arkansas report negligible profits to the state for tax purposes. Or the parent company will set up a real-estate investment trust in Delaware or Nevada to own its store buildings and warehouses—and the company trust will charge the Arkansas stores an exorbitant rent. Nearly all the profits go to the Delaware subsidiary and are not taxed at the state level.

The poor Arkansas merchant who has to compete with the big national companies is at an even greater competitive disadvantage.  A tire dealer in Sherwood who has to compete with Walmart or Sam’s Club has to pay Arkansas taxes on his income, but his big competitors pay little.

Half the states that have income taxes have fixed that giant loophole by requiring combined reporting. They take the company’s total national net income and compute the percentage of the business that is done in their state. That decides the company’s tax liability in that state. If 5 percent of the corporation’s business was in Texas, 5 percent of its profits will be assigned there and taxed. What could be fairer than that?

A Republican small businessman from Berryville named Phil Jackson tried every year for as long as he was in the legislature to level the playing field for small businessmen, but he could never get even one Republican to join him and a few Democrats.

It’s good to see young Jim Nickels take up the lonely fight, but he will pay a price at the next election. There will be some handsome gifts to the campaign of his Republican opponent. Good deeds do not go unpunished.