Taxes were raised in 1983 and, again, in 2004 with the following result: Arkansas ranked 47th, 48th or 49th nationally in per capita personal income, with a level 75 to 78 percent of the U.S. thru 2006. In sum, income improved by a mere three-hundredths (3/100ths) in nearly a quarter-century. This is the sad economic record defended by tax cut opponents, and it’s time they were called on it. Their policies ate the seed, and caused capital, jobs and paychecks to flee Arkansas. The long-suffering people of Arkansas deserve better.
Per capita income expanded to 81 percent of the U.S., and Arkansas’ rank reached 46th following the largest tax cut in the state’s history, a 75 percent reduction in the grocery tax (2007-11). But other state taxes must be cut if Arkansas is to compete for new jobs and improve its income rank.
Fiscal Recommendations
Phase-Out the Grocery Tax
Reductions in the grocery tax are one factor in Arkansas’ recent improvement in per capita personal income from 48th to 44th in the U.S. But there is another compelling reason to phase-out the grocery tax: it is an immoral tax that falls disproportionately on the weakest members of civil society.
Reduce State Income Tax Rates
Current Arkansas policy punishes middle-class households. They pay the top 7 percent income tax rate, the highest among states that border Arkansas. Middle-class households in Arkansas should not be punished for living on the wrong side of the state line. Arkansas state income tax rates should be reduced over a multi-year period.
Use Dynamic Analysis in Revenue Estimation
Dynamic analysis is an attempt to measure the full impact of fiscal policy revisions, including tax proposals, on revenue estimates. It can also provide legislators with more information when considering fiscal proposals. One example is the 2008 increase in the severance tax.
Limit Spending
Arkansas government is like the kudzu plant. It grows when the private economy is contracting. It grows when the private economy is expanding. Through rain or shine Arkansas government grows, advancing policies that interfere with private sector entrepreneurs, job creation and income growth.
Identify Arkansas Medicaid’s Unfunded Liabilities
The unfunded liabilities of the state’s ‘ARKids First program,’ a major component of Arkansas Medicaid are conservatively estimated at $3.5 billion, according to enrollment, federal reimbursement and average annual cost data obtained by the Policy Foundation. Policymakers should make formal identification of ARKids’ unfunded liabilities a top priority.
Education Recommendations
Expand Charter Schools
Charter schools have come a long way since the Policy Foundation published a 1996 study on the idea. Policymakers expanded charters in 1999, 2005, 2007 and 2011 but there are other ways to advance the concept:
∙ Empower public colleges and universities to sponsor charters;
∙ Recognize charters under Lake View in terms of equitable funding for facilities; and
∙ Establish a new charter authorization authority.
Expand the Virtual Academy
Distance learning has been part of K-12 virtual education efforts in Arkansas since the mid-1990s. But obstacles to virtual education exist. There is inadequate access to virtual education for students. K-8 enrollment statewide is capped at 500 students. Children with inadequate access to virtual education include those with medical conditions.
Consider School Choice
Charter students are the smallest segment of the niche Arkansas market for school choice. Nearly 60,000 K-12 students are enrolled in private, homeschool, charter or public school choice programs. The size of this market is four times greater than special interest groups that oppose school choice.
Twenty-one (21) states and the District of Columbia have school choice programs serving parents and guardians who wish to enroll children in private or home schools. But Arkansas doesn’t have any private school choice programs.
Merge Service Co-Ops into One Unit
Much of the debate about K-12 consolidation revolved around the student enrollment threshold to be used as criteria for closing districts. Gov. Huckabee proposed a 1,500 threshold and some legislators suggested a lower number before 350 students was decided upon in PA 60 of the 2nd Extraordinary Session of 2003. A similar debate about the educational co-ops did not occur.
Other Recommendations
Ethics Reform
The Policy Foundation’s interest in ethics reform dates to 1998 when it made recommendations to prevent double-dipping in terms of compensation. Other reforms include ending gifts by lobbyists to state officials, and requiring officials to wait two years before becoming lobbyists.
Term Limits
The people of Arkansas have spoken twice on the issue, approving term limits in 1992 and rejecting a legislative proposal to undo the reform in 2004. Term limits is a reform that should not be altered.
