By David J. Sanders

Our state officials’ want for crafting new state-sponsored programs or other grand initiatives supposedly created for the public good — all made possible by finding new or enhancing existing revenue streams — has driven tax rates through the roof. Arkansas’ tax structure is one of the region’s most punitive in terms of capital formation.

But one lawmaker has a sea-changing idea that could halt Arkansas’ confiscatory tax policies and help grow the state’s economy.

Recent job losses, both real and announced, raise questions about Arkansas’ long-term ability not only to attract new jobs but also to retain robust levels of employment at our large home-grown corporations. Wal-Mart’s announcement that 800 jobs would soon disappear underscores the potential problem. Some of the jobs, specifically those in the apparel division, are to be relocated to New York City.

It’s not just Wal-Mart’s recent announcement. Other home-grown companies have announced layoffs as well. Alltel’s slow unwinding, first being sold to a private equity group and then to its rival Verizon Wireless, proves that somewhere along the way, its leadership felt that it was more profitable to sell than to stay in business.

Meanwhile, the country’s unsteady economic environment has forced most businesses and governments into survival mode. Policy makers should begin thinking ahead to the next economic recovery. As with all of the recoveries over the last century, a recovery’s strength directly corresponds with the preceding recession’s depths — a deep recession means a strong recovery and shallow recession means a weak recovery.

By most measurements, the current recession is a real humdinger.

One Arkansas lawmaker’s pro-growth idea would not only position the state’s economy to expand in these uncertain times, but it would prepare the economy to roar in a recovery.

State Rep. Ed Garner, R-Maumelle, has drafted a white paper entitled “Invest in Arkansas: An Emergency of Opportunity” in which he outlines a strategy that would attract and retain job-creating investment capital in Arkansas through elimination of long-term capital gains taxes on in-state investments.

The increasing demand by lawmakers to create programs and the corresponding demand for the public to utilize them has created an unsustainable cycle. Garner argues the increased demand for state services necessitates either a future cut in services, a dramatic increase in taxes or an expansion in the tax base through increased economic growth, which will reduce demand for state services.

He, of course, prefers the latter.

The elimination of capital gains taxes on in-state investments, as he proposes, would create an incentive for more investment at home by existing corporations, but it would also serve to attract significant out-of-state investments by removing punitive tax policies on capital. Likewise, it would encourage Arkansans to invest in Arkansas companies.

Arkansas currently taxes a short-term capital gain (an investment held under a year) at 7 percent and a long-term gain at 4.9 percent, unlike Tennessee and Texas, which not only do not have an income tax, but do not levee a tax on capital gains. And, both Mississippi and Oklahoma have already eliminated capital gains taxes on in-state investments.

Under Garner’s plan, capital gains on investments outside of Arkansas would be taxed at 7 percent. But he would give investors an opportunity to reduce their capital gains tax burden on that type of investment. If the proceeds are reinvested in Arkansas within 30 days, capital gains taxes on investments outside Arkansas would be reduced by 60 percent.

Instead of using more taxpayer dollars to fund multimillion-dollar handouts so that our state’s leaders can to lure a few hand-picked industries, Garner’s plan would grow Arkansas companies and produce new jobs and spur investment in real estate and land development by building an incentive into the tax code for companies and individuals to invest in Arkansas.

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David Sanders writes twice weekly for the Arkansas News Bureau in Little Rock and is the host of Arkansas Education Television Network’s “Unconventional Wisdom.” His e-mail address is DavidJSanders@aol.com.