By Jason Tolbert
Tax cuts are all the rage in this year’s legislative session, but all, save one, are relevantly modest in scope.
Although varied, from the grocery tax to the used car tax to taxes on manufacturers, most could best be described as safe singles up the middle. One, though an effort to cut the tax on in-state capital gains by Rep. Ed Garner, R-Maumelle, swings for the fence.
Well, maybe not the fence. Perhaps it’s more like stretching a double into a triple. Interestingly enough, just how far the measure goes is what pits Garner against the Department of Finance and Administration.
Garner’s bill — HB1002 — was actually the first bill filed in this legislative session back in November of last year. Obviously, this is Garner’s own personal pet project. If you spend longer than five minutes visiting with him, odds are the capital gains tax cut likely will work its way into the conversation.
“I wanted to make Arkansas a more competitive place for business and job creation,” explains Garner. “As a freshman, I passed an income tax cut out of the House and met Sen. Jim Hill, chairman of Senate Revenue and Tax. He beat my bill and told me if I really wanted to create jobs, I needed to focus on eliminating the capital gains tax. Sen. Hill was responsible for reducing Arkansas’ capital gains tax in the late ‘90s. As I began working on the numbers, I realized he was right.”
The measure is a targeted cut that Garner believes will spur the state’s economy by encouraging investment within the state. It seeks to do this by eliminating capital gains taxes on all new investments beginning after July 1, 2011, within Arkansas.
According to DFA, this bill will have a revenue impact beginning in fiscal year 2013 of $44.5 million and $68.5 million each fiscal year after that. However, Garner believes the numbers are unrealistic.
“The fiscal 2013 impact of $44.5 million is outside the realm of possibility. Over an extended period of years, $60 to $70 million of capital gains revenue would be more than made up by the income taxes of the new jobs created. We won’t have to cut any budgets because of the passage of this bill,” insists Garner.
And he certainly has a point. For the state to lose $44.5 million in tax collections in 2013, Arkansans would have to realize over $900 million in gains on new investments in a six-month time period. For that to happen, there would need to be around $9 billion in new investments, which would realize an average 10 percent rate of return, and subsequently would be sold after 12 to 18 months from the original investment.
While it would be great for the state if all of the elements fell together, it’s highly unlikely Arkansas will experience such an influx of new capital within the next year.
After working the bill through the House and getting it passed with 52 votes, Garner’s bill most recently was in the hands of the Senate Revenue and Taxation Committee. This is a bit of déjà vu for Garner, who got a similar bill through the House in the previous legislative session only to have it die in this same Senate committee.
Getting this bill out of committee is perhaps the biggest obstacle. This eight-person committee appears to be split along party lines with four Republicans and four Democrats.
However, it should be noted that two Democrats on the committee tend to lean conservative at various times. Sen. Larry Teague, D-Nashville, who chairs the committee, and Sen. Jerry Taylor, D-Pine Bluff, both come from Mike Ross country and have similar voting patterns and viewpoints.
“I support it but it gets back to whether it is reasonable and can we support it if it is responsible,” said Teague when asked about Garner’s cut.
We will soon find out one way or the other as Garner plans to run the bill on Wednesday. However, if the committee’s rejection last week of a proposed back-to-school sales tax holiday is any indication, members may not be keen of tax cut ideas that did not originate in their chamber.
Jason Tolbert
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Jason Tolbert is an accountant and conservative political blogger. His blog — The Tolbert Report — is linked at ArkansasNews.com. His e-mail is jason@TolbertReport.com.
