Fall 2016

  • On December 28, 2016, ACRE policy analyst Jacob Bundrick and ACRE Scholar Jeremy Horpedahl were on Newsradio 102.9 KARN discussing tax reform in Arkansas.

Don’t work too hard because it could cost you big time due to Arkansas’s curious new tax rules. For some people, an extra dollar of income could be a costly mistake.”

Dr. David Mitchell comments on Arkansas’s confusing tax code. The code, arising from a 2015 attempt to cut taxes for the middle class, consists of three different tax schedules with different marginal tax brackets. The result: in some cases earning additional income can push earners from one schedule to another, creating tax cliffs. Tax payers in Arkansas can see marginal tax rates as high as 10,000%. Not only that, the Arkansas tax code is more complex, less fair, and higher than competing surrounding states.

Dr. Mitchell advocates reform through policy alternatives from ACRE and the Tax Foundation’s newest report “Arkansas: Road Map to Tax Reform” that provides ways to make our tax codes simpler, fairer, and incentive compatible.

  • ACRE Student Research Fellow Maleka Momand was quoted extensively in an article in the Times Record for her research on Civil Asset Forfeiture on December 4, 2016.

“Can Arkansas reform its tax system to make it less burdensome for all Arkansans, while still maintaining state revenue? Our organizations recently released a joint report called “Arkansas: A Road Map for Tax Reform.” We provide several routes for getting to the same desirable destination: a tax system that works for all Arkansans and is in line with best state practices and current academic research.”

ACRE scholar Dr. Jeremy Horpedahl addresses Arkansas’ complex tax structure that earns the states its 38th national tax code ranking. Using ACRE and The Tax Foundation’s recent joint report, “Arkansas: A Road Map for Tax Reform,” Horpedahl discusses alternatives to maintain revenue while simplifying Arkansas’ tax code. One recommendation is to eliminate the state’s many corporate, franchise, and manufacturing tax exemptions. Doing so would raise enough money to lower our overall tax rates, attracting businesses and promoting fairness. The report also advocates expanding the state’s sales tax base in exchange for lowering income tax – a move that analysts say would further encourage more economic growth. Dr. Horpedahl then points out the relative speed at which our tax codes could be reformed. like North Carolina, who moved from a 44th to 11th national tax ranking just in 2013 using similar reform methods. Arkansas should follow North Carolina’s example by simplifying tax code, then the state will see greater prosperity for its residents.

“Arkansas law broadly states that seized property and money can be spent for law enforcement and prosecutorial purposes. Since there are few rules and little oversight on forfeiture spending, law enforcement officials have the incentive to seize property and cash to finance their spending.”

ACRE Research Fellow, Maleka Momand, discusses her research on civil asset forfeiture in Arkansas. Currently, Arkansas law allows for police officers to take an individual’s possessions as long as there is a preponderance of evidence (51%) that the items in question are associated with criminal activity without any type of criminal conviction or charge. Momand’s research showed that minority groups in the state are most targeted by CAF laws. State laws also allow police to use taken possessions to finance their budgets, incentivizing abuse. With a ranking of “D” by the Institute for Justice, it is recommended that Arkansas raise the standard of proof required to confiscate assets or require a criminal conviction before assets can be permanently seized.

“However, subsequent amendments have slowly chipped away at the restrictions put in place by Amendment 20. For example, Amendment 82, passed in 2004 and amended in 2010, allows the state Legislature to issue bonds for economic development of up to 5 percent of the state’s general revenues. This cap on debt currently provides some protection for Arkansas taxpayers, but Issue 3 would remove a major safeguard.”

Written prior to the November 2016 election, ACRE research assistant Terra Aquia discusses Issue Three, a ballot measure to remove the cap that limits debt collection to five percent of general tax revenues. Proponents say the cap limits the state’s ability to issue incentives that would attract businesses and promote economic growth. To know how residents should vote, Aquia says we need to observe the debt collection cap’s origins.

In 1913, the federal government began funding state highway construction. To meet federal requirements, the state allowed for local governments to take on debt for road construction. The result: by the end of the 1920’s local governments took on $160 million ($3 billion in today’s dollars) of debt they could not afford. The state then took on this debt burden which was impossible to pay back. Arkansas, in 1933, became the only state to file for bankruptcy during the Great Depression. Voters then reacted by limiting legislator’s debt issuing ability without voter approval; the five percent cap is the remainder of this law. To further eliminate the debt restrictions would remove the last protection Arkansas tax payers have – setting up the potential for fiscal irresponsibility by current and future legislators.

  • Risky Proposition op-ed published October 22, 2016 by ACRE policy analyst Jacob Bundrick in the Arkansas Democrat-Gazette.

“In 1798 Thomas Jefferson warned, “let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.” Arkansas voters must decide whether they prefer constitutional chains or their confidence in the men and women of the legislature to restrain themselves.”

Written prior to the November 2016 election, ACRE policy analyst Jacob Bundrick discusses Issue Three, a ballot vote on whether to make it so that the Arkansas General Assembly has no limit to the amount of debt it can issue for economic development projects from the current 5% cap.

Proponents argue that currently Arkansas is missing out on economic development and potential jobs because we cannot incentivize companies by offering government bonds. Bundrick explains that while it is obvious that new businesses to Arkansas would benefit the state, what would occur if they are unable to pay back the bonds? Arkansans would then have to bear the debt burden through taxation. We can see that Arkansas has defaulted on outstanding debt before in 1934, and voters responded by limiting the ability of policymakers to collect new debt without voter approval.

Since that time, the 1934 decision to limit legislator’s ability to take on debt has eroded to the five percent debt cap we have today; Issue 3 would completely remove the remaining limitations – a decision Bundrick says will set up the state for great risk.

  • Policy analyst Jacob Bundrick’s recent blog post on tax breaks and subsides in Arkansas was recently cited in a Letter to the Editor by Mr. Dane Clark of Fort Smith in the Lonoke Democrat. Clark’s letter was circulated in several local Arkansas papers like the The Helena Arkansas Daily World, the Fort Smith Times Record, and the Arkansas News Bureau. This blog post was based on Bundrick’s recent policy review, Tax Breaks and Subsidies: Challenging the Arkansas Status Quo.
  • Film Incentives Benefit Out-of-Staters op-ed published October 10, 2016 by ACRE policy analyst Jacob Bundrick and Rajshree Agarwal, the director of the Ed Snider Center for Enterprise and Markets at the University of Maryland’s Robert H. Smith School of Business in The Baltimore Sun. 

“Game theory teaches that both suspects would be better off staying quiet, but one person ultimately cracks. Something similar happens when film industry lobbyists come calling at the state level for tax credits and cash rebates.”

Jacob Bunrick and Rajshree Agarwal discuss state incentives to the film industry in the form of refundable income tax credit for the costs of film and television productions. The pair describes the situation as a “prisoner’s dilemma.” States would be better off if they collectively refused to hand out these special privileges rather than doing so. This is because the actual benefits for having production companies film in states is sparse when compared to the loss of tax revenue. While it is noted that the production companies take tax incentives into great consideration when choosing states in which to film, Bundrick and Agarwal state that the temptation to subsidize film producers should be resisted as it diverts tax money from other needed services and is unlikely to provide a return on investment.

“In states that have allowed nurses practitioners full authority, they can work without an overseeing physician and meet the unmet needs of the poor, rural and other underserved communities. The reason we have studies showing positive health outcomes with nurse practitioners is that some states already grant them full authority.”

ACRE scholar Dr. David Mitchell addresses the expected 20,400 shortage in primary care physicians to occur by 2020. Mitchell says that this shortage could more easily be met if states increase the scope of practice for nurse practitioners. Currently in half of states, practitioners are required to act in conjunction with or in supervision by physicians, despite that 80% of all NP are certified in primary care. If these state limitations are removed, the healthcare needs of people living in rural or poor areas could be more easily met. Nevertheless, physicians largely oppose doing so; they argue that practice without physicians present could lead to heavy risks for patients. Regardless, evidence shows that states that allow a greater responsibility for NP see greater positive health outcomes. If restrictions on NPS were lessened, we could improve the overall health of the state.

  • Shortage Solution op-ed published September 23rd, 2016 by ACRE policy analyst Dr. Mavuto Kalulu in the Arkansas Democrat-Gazette.

“Teaching is a doing profession–not a test-taking profession. Instead of imposing burdens on people who want to enter the profession, Arkansas should lower the entry requirements by lowering the cutoff score. This will increase the quantity. Teacher quality can then be ensured by removing ineffective teachers from the classroom, rather than preventing aspiring teachers from entering it.”

ACRE Policy Analyst Mavuto Kalulu discusses the shortage of teachers not only across the nation but also in the state of Arkansas. Kalulu says teaching licensure requirements are to blame as obtaining a license involves taking on extra costs and attaining a high test score. Because of this, licensure incentivizes people who would ordinarily become teachers to move to other occupations. It makes sense then that 25 schools in Arkansas have requested to remove the license requirements as it prevents them from filling teaching positions in a timely manner. Other schools have taken to using substitute teachers, a tactic that studies show lower student test scores. Finally, Kalulu argues that we should lower the requirements to become a teacher so that we can fill this shortage and remove educators who are proven ineffective – this will provide a higher quality of teachers, especially for the rural and poor.

  • Taking a Gamble op-ed published September 3rd, 2016 by ACRE policy analyst Jacob Bundrick in the Arkansas Democrat-Gazette.

“When private money does not finance an economic development project, the market is sending a signal that the project is perceived as too risky. This “funding gap” exists for a reason. Government officials should heed this warning and avoid putting undue risk on taxpayers by offering incentives anyway”

Jacob Bundrick calls the Arkansas Economic Development Commission’s use of tax payer money to attract jobs and investment a risky bet. He says bureaucrats are more likely to be risky with taxpayer money because they do not have to pay the costs if their investment goes south.

For example, Pinnacle Foods recently received a $200,000 subsidy in exchange for creating twenty five jobs after having failed on their employment promises from a 2010 tax incentive agreement. Despite having already lost on one deal, the government granted Pinnacle tax payer money a second time. Bundrick says there is a reason companies come to the government to fill funding gaps, they are unable to receive investment from the private sector and are bad investments with too much risk.

Tax payer money should not be used on companies who are likely to fail. Instead of using risky tax incentives to attractive companies, we should instead work to create a competitive tax environment, a more secure way for Arkansas to attain jobs.