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ACRE Scholar & Analyst Testify Before Legislature

By Dr. Jeremy Horpedahl and Mr. Jacob Bundrick

Two members of the ACRE team recently testified before two important committees of the Arkansas State Legislature. On September 20, 2016, Jacob Bundrick and Dr. Jeremy Horpedahl testified before a joint session of the House and Senate Committees on Revenue and Taxation. The purpose of their testimony was to help inform members of the legislature about the current academic research on tax policy and may relate to fundamental tax reform in Arkansas. Governor Hutchinson has publicly indicated that he is interested in ideas for reforming Arkansas’ tax system during the 2017 legislative session, and these committees are interested in what academic research has to say about tax reform.

Since no specific bill was currently under consideration, this session was structured as an educational session to get input from local academics and national experts who study tax policy. Professor Philip Oliver from UALR’s Bowen Law School and Nicole Kaeding, an economist at the Tax Foundation, also testified at this joint committee meeting. You can view the full agenda of the committee meeting on the website of the Arkansas Legislature.

Dr. Horpedahl presented the committees with a list of Four Principles of Ideal Tax Theory. These principles included keeping tax rates low, keeping tax bases broad (for example, by making sure both goods and services are included in the sales tax base), having a correctly defined tax base, and relying more on the least harmful taxes (for example, by relying less on income taxes since they discourage work and productive activities). Dr. Horpedahl then discussed to what extent Arkansas is living up to these principles. Arkansas generally has high tax rates (with the exception of property taxes), exempts some goods and most services from the sales tax, and relies much more on income taxes than neighboring and regional states.

Mr. Bundrick presented after Dr. Horpedahl and took a closer look at one of the principles of sound tax policy: having a broad and correct tax base. Specifically, Mr. Bundrick discussed the concept of “tax expenditures,” a term used by experts on tax policy to describe special favors in the tax code that function much like government spending. But unlike government spending, tax expenditures are hidden from public view and lead to a less transparent government overall. An example of a tax expenditure would be a tax credit for child care (which is hidden in the tax code) versus a direct subsidy (in other words, just writing a check to parents or daycares). Even if we agree that the government should support working parents with young children, doing it through tax expenditures is inferior from the general public’s perspective because it is less visible. Mr. Bundrick further discussed how tax expenditures present an obstacle to piecemeal tax reform, because special interests will fight hard against any isolated change. Comprehensive tax reform is needed to clean out bad tax expenditures and make any good ones more transparent.

ACRE is honored to have been asked to contribute to this important debate and looks forward to being a part of the conversation as Arkansas begins to discuss options for tax reform. Keep following our blog for future developments on this issue, including a major publication that ACRE researchers are currently working on along with national experts to be published later this fall.

You can read Dr. Horpedahl and Mr. Bundrick’s PowerPoint presentations from their testimony at the following links:

Dr. Horpedahl PowerPoint [in PDF format]

Mr. Bundrick Powerpoint [in PDF format]