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7/31/2019 Dedicated Tax Increases in Arkansas Full
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DEDICATEDTAXINCREASESIN
ARKANSAS:PROVIDINGPUBLIC
GOODSORGROWING
GOVERNMENT?
BRADLEY R. GITZ, PH.D
h
LYON COLLEGE BATESVILLE, ARKANSAS
JUNE, 2012
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BRADLEY R. GITZ
BIO STATEMENT
Bradley R. Gitz received his doctorate in Political Science from the
University of I l l inois at Urbana- Champaign in 1989. He has taught at
Il l inois, the University of Alabama-Huntsvil le, Lafayette College, and has
held an endowed professorship (The Will iam Jeff erson Clinton
Professorship) in Political Science at Lyon College in Batesvil le, Arkansas
since 1994. He is the author of a various articles in scholarly journals and
the book Armed Forces and Political Power in Eastern Europe
(Greenwood Press). He belongs to a range of professional organizations
and regularly presents research at professional conferences. He has also
written a weekly opinion column on politics since 1999 for the Arkansas
Democrat-Gazette newspaper.
ABSTRACT
The following analysis focuses upon the use of tax increases for specific,
"dedicated" purposes at the state and municipal levels in the state of
Arkansas. Following a discussion of the theoretical issues involved and a
brief review of some of the scholarly l iterature on the subject, a
representative sample of such taxes from Arkansas is presented and
analyzed. While no firm conclusions are reached regarding the uti l ity of
dedicated taxes for providing particular "public goods" and services,
tendencies are identified that suggest their increased use corresponds
with both increased overall government spending and a higher overall taxburden for Arkansans that reduce the state's economic competitiveness.
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onemorestepontheroadtobetterhighways,morejobs,andabrighterfutureforourstateall
withoutraisingtaxesongroceries,medicine,orgasoline.1
Thefollowinganalysisexaminestherecenthistoryofsuchdedicatedtaxincreasesovertimein
Arkansas,withthegoalofprovidingabasisforassessingtheiradvantagesanddisadvantages.Based
uponthisanalysis,anargumentwillbemadethatsuchtaxeshavebecomemoreattractiveovertime
forelectedofficialsbecause1)theycanbemoreeasilysoldtothepublic;2)theyremovetheneed
tomakethekindsofdifficulttrade-offsinfundingdecisionsrequiredbytheuseofgeneralrevenue;
3)theircostscanbemoreeffectivelyconcealedfromtaxpayers;and4)theycanbeeasilyincreased,
extendedorevenre-purposedtofundothergovernmentalprograms.
THE LOGIC OF DEDICATED TAXATION
Dedicatedtaxincreases(whetherenactedbyvotersinreferendaorbylegislation)canincludea
rangeofdirectandindirect(excise)taxesandareusuallypresentedasmeansofaddressing
specificpublicgoodsneeds.Assuch,theyusuallyinvolvepassageofaspecifictax(ortaxincrease)
tofundpopularcauses;inmostcases,programslikeroadsandhealthcarewhicharethoughttobe
necessaryforenhancingastateormunicipalityseconomicdevelopmentandbroaderqualityoflife.
Promisesareaccordinglymadebysupportersthatsuchtaxesarerelativelypainlesswaystoaddress
deficienciesinvitalservicesandinfrastructurenecessaryforprogress.Anassumptionbehindsuch
effortsisthatvotersaremorelikelytoacceptmodest,targetedtaxincreasesforworthycausesthat
justabouteveryoneapprovesofandthatappeartoprovideclearbenefits.Accordingtoone
1QuotefromMadisonMurphy,ChairmanoftheArkansasHighwayCommission,andco-chairoftheMove
ArkansasForwardCommittee,intheArkansas-DemocratGazette,May21,2012,page5B.
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prominentstudy,education,localgovernment,andhighwaystendtothemostcommontargetsfor
suchearmarkingatthestatelevel.2
Criticsofthededicatedtaxincreaseapproachquestionwhethertheclaimsmadeonitsbehalfare
fullyjustified,andexpressconcernoverwhethertherelativeeasewithwhichtheycanbesoldto
thepublicproducesadynamicthat,inincrements,endsupdramaticallyraisingthecumulativetax
burden(andtherebyactuallyunderminingastateseconomiccompetitivenessinrelationto
surroundingstateswithpotentiallylowertaxburdens).Suchcriticsalsoraiseconcernsabouttheuses
towardwhichtherevenueraisedbysuchtaxesisput,includingwhethertheyfullyreachintended
projects,andwhethersuchtaxesareespeciallysusceptibletobeingsubtlyrepurposedorextended
longaftertheyhavefulfilledtheiralleged,initialobjectives.Thebroaderargumentcontainedwithin
suchcriticismisthatdedicatedtaxincreaseshavebecomepopularmeansofgrowinggovernmentin
awaythatvotershavedifficultytrackingandfullygraspingovertime.
WHAT WE (THINK WE) KNOW
Thegeneralissueofdedicatedtaxesandrelatedsub-issueshasbeenextensivelystudiedby
academicresearchers.Muchofthisresearchcentersaroundtwoconceptsfungibilityandthe
flypapereffect.
Fungibilityreferstotheabilityoflegislatorstosubstitutetaxdollars,whetherfromgeneral
revenueordedicatedsources.Asuccinctexplanationforsuchfungibility,andthemannerinwhich
itcastsdoubtontheimpactofdedicatedtaxrevenue,comesfromCrowleyandHoffer:
2ArturoPerez,EarmarkingStateTaxes:4
thEdition,(Washington,DC:NationalConferenceofStateLegislatures,
2008).
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..Assumeastategovernmentspends$100fromthegeneralfundoneducation.Supposethe
legislatureisabletopassanewspecialtaxonthebasisofitsrevenuebeingearmarkedforeducation
spending.Further,supposethisnewtaxbringsin$50inrevenue.Althoughitmayseemnaturalto
assumeeducationspendingwillincreaseby$50asaresultoftheearmarkedrevenue(to$150),policy
makersactuallyhavetheoptionto decreasespendingoneducationoutofthegeneralfund.Evenif
the$50earmarkedtoeducationspendingisactuallyspentoneducation, totaleducationexpenditures
mayremainunchangedifthelegislaturedecidestodecreasegeneralfundspendingfrom$100to$50.
Thisallowspolicymakerstospend$50ofrevenuepreviouslydedicatedtoeducationelsewhere,and
theearmarkisfunctionallyequivalenttoa$50increaseinunspecifiedgeneralfundrevenue.3
CrowleyandHofferthereforeconcludethatpoliticiansmayusetheearmarkingoftaxrevenuesto
specificexpenditurecategoriestocovertlyraiserevenueandexpandtotalgovernmentsize;an
optionthatbecomesespeciallyattractivewhenthereispublicresistancetogeneralincreasesin
taxes.UsingtheLeviathanmodelofgovernmentdevelopedbyGeoffreyBrennanandJames
Buchanan(whichemphasizesthetendencyofgovernmenttomaximizeitssizeandpower),their
researchsuggeststhatdedicatedtaxrevenuesarelargelyineffectiveforincreasingexpenditures
towardwhichtheyaretiedbutmoreeffectiveatincreasingtotalgovernmentsizebymasking
increasesintotalgovernmentspending.4
Theflypapereffectrefers,incontrast,totherelatedquestionofhowmuchdedicatedrevenue
actuallysticks(asinflypaper)totheintendedtarget.5Awiderangeofscholarlystudieshave
consequentlyproduceddisparateresultsforthiseffect,withconsiderablevariationsinthecasesof
lumpsumgrants(whicharetheoreticallyfungible),statelotteryrevenuededicatedtoeducation
(morecommoninrecentyears),andstatehighwayspending.Theconsensusfromsuchresearchis
3GeorgeR.CrowleyandAdamJ.Hoffer,DedicatedTaxRevenue:ConstrainingGovernmentorMaskingItsGrowth?
(WorkingPaper,MercatusCenter,GeorgeMasonUniversity,No.12-17,May2012),p.8CrowleyandHofferalso
provideanextensiveandhighlyusefulforthesepurposesliteraturereviewondedicatedtaxation.4OntheLeviathanModelseeGeoffreyBrennanandJamesBuchanan,TowardsaTaxConstitutionfor
Leviathan,JournalofPublicEconomics8(1977):255-274;andBrennanandBuchanan,ThePowertoTax:
AnalyticalFoundationsofaFiscalConstitution(Cambridge,UK:CambridgeUniversityPress,1980).5Ontheflypapereffect,seeRobertP.Inman,TheFlypaperEffect(NationalBureauofEconomicResearch
WorkingPaperNo.14579,Cambridge,MA:December2008).
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thatatleastsomeofthededicatedrevenuegoestowardtheintendedtarget,producingatleastsome
degreeofflypapereffect,althoughinmostcasesanamountwellbelow100%.6
Lessfrequentlyfoundintheliteratureondedicatedtaxationhavebeenanalysesofparticular
examples(casestudies)fromindividualstatesdesignedtomorepreciselyexplainthewaysinwhich
dedicatedtaxescanbemanipulatedormodifiedbylegislatorstoincreaseoverallgovernmental
revenue.Thepresentstudyseekstofillthisgapbylookingatarepresentativesampleofsuchtaxes
dedicatedforvariouspurposesinthestateofArkansas.Thegoalwillbetoexplorethemannerin
whichdedicatedtaxesforpopularcausescanbeestablished,extended,increased,andeven
repurposedafterinitialpassage,therebyprovidinglegislatorswithanexpedientandoftensubtle
mechanismwithwhichtoincreasegovernmentrevenue.
DEDICATED TAX INCREASES IN ARKANSAS
WhatisreferredtoasSpecial(earmarked)revenuehasbecomeamoreimportantpartofoverall
revenueforthestateofArkansasovertime,increasinginvalueby130%between1994and2008,
from$734millionto$1.692billion(Generalrevenueincreased,incomparison,byonly77%overthe
sameperiod).7Overall,Arkansasreceivesjustunder10%ofitsoverallrevenuefromspecial
(dedicated)revenue(thestateofAlabamaranksfirstinthepercentageofrevenuederivedfrom
dedicatedpurposesat84%;thestateofRhodeIslandlastwith4%).8Thesinglelargestpurposefor
whichdedicatedrevenueisraisedisroadsandhighways,comprising37%ofoverallspecialrevenue
(largelythroughgastaxesandvehicularregistrationfees),butArkansashasalsoemployedafairly
6CrowleyandHoffer,p.6-7
7FinancingStateProgramsinArkansas,ArkansasBureauofLegislativeResearch,2008
8FromPerez,EarmarkingStateTaxes,citedinCrowleyandHoffer,p.4
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typicalarrayofothertaxesdirectedtowardotherpurposes.9Municipalitieshavealsomadeuseof
thededicatedtaxapproachtofundcityservices,communityprojects,etc.
Assuch,thefollowingdiscussionaddressestheuseofsuchtaxesinrecentyearsinArkansas,
primarilyatthestatelevelbutwithsomelocal/municipalcasesincluded.Forthesakeof
representativeness,thesampleincludesarangeofdedicatedtaxesfordifferentpurposes.
BEER TAXES
Taxesonbeer,wine,andliquoringeneralareoftenjustifiedasameansofbothrecoupingcosts
(externalities)associatedwithcertainbehavior(increasedheathcostsinthecaseofconsuming
alcoholicbeverages)anddiscouragingsuchbehavior(wherethetaxessentiallyimposesapenalty
uponitbydrivingupcosts).Withinthiscontext,thereareseveralrecentexamplesofsuchataxation
approachforthestateofArkansas,which,accordingtoonesurvey,hasthe18thhighestlevelof
taxationamongstatesonbeer,the31sthighestonwine,andthe44
thhighestonliquor.
10
SenateBill576/Act1841,withthetitleTheChildCareforWorkingFamiliesActpassedin2001
bytheArkansasstatelegislatureimposedafairlystraightforward3%taxonbeer,withtheensuing
revenuetobedirectedtowardtheDepartmentofHumanServicesGrantFund,fromwhich20%would
gotofundchildcareforlow-incomefamiliesand80%tosupportandexpandtheArkansasBetter
ChanceProgramofthestateDepartmentofEducation.Thelanguageofthebillspecifically
mandatedexpirationofthetaxonJune,2003,twoyearshence.
9FinancingStateProgramsinArkansas
10DatafromtheCenterforScienceinthePublicInterestAlcoholPoliciesProject,August,2004.
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Beer
SB 576/Act
1841 Passage2001
THE CHILD CARE FOR
WORKING FAMILIESACT
Put into effect a tax on
Beer to go to Departmentof Human Services GrantsFund. Tax was set toexpire two (2) years later(June 30, 2003)
HB 1200/Act 272 Passage2003
THE CHILD CARE FORWORKING FAMILIESACT
Altered the Sunset Clausein SB 576 so that itexpired on June 30, 2005;which extended the tax bytwo (2) years
HB 1691/Act 2188 Passage2005
AN ACT TO EXTENDTHE SUNSET CLAUSEON THE RETAIL BEERTAX
Altered the Sunset Clauseof SB 576 so that the taxshall not extend beyondJune 30, 2007. Thisextended the tax anothertwo (2) years totaling six(6) since the original billSB 576
SB 1004/
Act 869 Passage2007
AN ACT CONCERNING
THE RETAIL BEER TAX
Put into place on July 1,
2007 (Day after theextended tax from SB 576expired) a new tax onBeer
SB 248/Act982 Passage2011
AN ACT TO MAKEVARIOUSCORRECTIONS TOTITLE 3 OF THEARKANSAS CODE OF1987 CONCERNING
ALCOHOLICBEVERAGES
Put into effect a new taxon Beer with revenuebeing added to theGeneral Revenue Fund
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DespitethesunsetprovisionspecificallycontainedinSB576,twoyearslaterHouseBill1200/Act
272extendedthe3%beertaxforanothertwoyearsuntilJune30,2005.Afurtherextensionofthe
tax(untilJune30,2007)wasenactedbyHouseBill1691/Act2188.Inapparentresponsetocriticism
fromsomestatelegislatorsregardingtheseextensions,thelatterbillalsocontainedlanguage
requiringtheStateBoardofEducationandtheDepartmentofEducationtofundthetargeted
programsafterthetaxexpirationin2007.
Althoughthe3%beertaxwassubsequentlyallowed(perthelanguageofHB1691)toexpireon
June30,2007,afterhavingbeenineffectandproducingrevenueforsixyears,asubstitutebeertaxof
1%wasimposedbySenateBill1004/Act869effectiveonJuly1,2007,thedayaftertheexpirationof
theoriginaltax.SB1004alsoalteredthecontentofthebeertaxbydirectingallrevenuetheGeneral
RevenueFund,withnoconstraintsuponuse.Theseriesofextensionsoftheoriginalbeertaxhad
thereforealteredthepurposetowardwhichthetaxwasdedicated.
In2011,the1%beertaximposedbySB1004wasincreasedto4%bySenateBill248/Act982,
therebyproducingataxonbeerhigherthantheoriginal3%imposedbySB576tenyearsearlier.SB
248alsodirectedallgeneratedrevenuetowardtheGeneralRevenuetobeusedinanopen-ended
fashion.UnlikeSB248(andsubsequentextensionsthereof),therewerenosunsetorexpiration
provisionswrittenintoSB248.
AnexaminationoftheseriesofdedicatedbeertaxesinArkansasbeginningin2001withSB576
revealsseveraltendenciesthatmaybeintrinsictosuchanapproachtoraisingtaxrevenue.The
originalbeertaxof3%wasjustifiedbythegoaltowardwhichtherevenuewouldbedirectedchild
careandeducationforthosewithlowerincomes;causeswhichcouldbeexpectedtomuster
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considerablesupportinarelativelypoorstatewithminimalsuchservices.Itwouldbereasonableto
concludethatfewelectedofficialsandfewaspiringtostate-wideelectedofficewouldwishtobeon
thewrongsideofsuchissues(definedasinoppositiontosuchatax).Inabiblebeltstatewitha
stillhighpercentageofdrycounties,therewouldalsoseemtobelessinherentoppositiontosin
taxesuponbeerpurchases.
Importanttonote,however,istheevolutionoftheoriginal3%beertax,andthemannerinwhich
itwasextendedontwospecificoccasions(HB1200andHB1691)beyondtheinitialexpirationdateof
2003untilJune2007.Asseverallawmakersarguedinopposingtheseextensions,theycouldbe
construedasviolationsofthepromisesoriginallymadetoArkansastaxpayersandthebeerindustry
backin2001,whenaspecificexpirationdatewasidentifiedinordertohelpwinpassage.11Of
perhapsgreaterrelevance,whentheoriginal3%taxwasfinallyterminatedonJune30th,2007(four
yearslaterthantheoriginalsunsetdate),areplacementtaxof1%wasimmediatelyimposedthatwas
laterincreased(bySB248)to4%in2011,withnoexpirationdate.Throughthisseriesofextensions
andreplacements,theoriginalpurposeofthebeertax(fundingoftheworthycausesofchildcare
andlower-incomeeducation)wasdroppedandrevenuedirectlyentirelytowardtheGeneralRevenue
Fund.Overthecourseofadecade,a3%taxonbeerintendedtogotowardspecificpurposesandlast
twoyearshadbeenextendedseveraltimesandbecomea4%taxonbeerwithnoexpirationdateto
bedirectedtowardgeneralrevenue.
Apossibleexplanationforthelongevityandshiftingcontent/purposesofthebeertaxcanbe
foundintheeasewithwhichsuchtaxescanbeextendedwithlittlepublicnoticeonceadedicated
tax,particularlyonethatimposesonlymodestburdensononlyasubsetoftaxpayers(suchasa3%
11ArepresentativecommentalongtheselinescamefromRep.RickSaundersofHotSprings,whonotedAllthese
industriesandallthesepeopleunderstoodthistaxtosunset.Adealisadeal.Rep.DarylPaceofSiloamSprings
askedDoyouthinkbeerdrinkerstookusatourworditwouldsunset...YouthinkitsOKtobreakourwordtothe
people?
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CigaretteTaxes
SB 320/Act434 Passage 1997
THE BREAST CANCER ACT OF1997
Placed a tax on cigarettes tofund Breast CancerResearch
HB 2522/Act1698 Passage 2001
AN ACT TO AMEND THEDISTRIBUTION OF THEADDITIONAL TAX ON CIGARETTES
Redistributed revenue fromCigarette tax put into effectby SB 320
HB 2629/Act2219 Passage 2005
AN ACT TO PROVIDE FUNDINGFOR ADMINISTRATIVE COSTS OFTHE ARKANSAS RX PROGRAM
Provided funding forArkansas Rx Program byredistributing revenue fromcigarette tax created by SB320
SB 223/Act1236 Passage 2007
AN ACT TO MAKE ANAPPROPRIATION FOR PERSONALSERVICES AND OPERATINGEXPENSES
Redistributed revenue fromadditional cigarette taxcreated by SB 320
SB 671/Act1211 Passage 1991
AN ACT TO LEVY AN ADDITIONALTAX OF ONE CENT (1) PER PACKOF CIGARETTES
Increased the tax oncigarettes to credit of theAging and Adult ServicesFund
HB 1204/Act180
Passage 2009
AN ACT TO INCREASE THE TAXON CIGARETTES
Increased the tax oncigarettes with all revenue
being credited into theGeneral Revenue Account
MixedDrinks
HB 1111/Act261 Passage 1989
AN ACT TO IMPOSE ANADDITIONAL TAX ON MIXEDDRINKS
Additional tax on mixeddrinks sold on premises tofund improvements to theUAMS Campus
HB 2633/Act
1274 Passage 2005
AN ACT TO CONTINUE THE
SUPPLEMENTAL MIXED DRINKTAX
Extended the tax put into
effect by HB 1111 making itpermanent
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whetherthewordofthelegislaturewasvalid.StateSen.HimHolt,D-Springdaleechoed
AbernathyssentimentsbynotingthatWegaveourwordwedsunsetthistax.12
Althoughtheindefiniteextensionofthemixeddrinktaxdidnotinvolvearedirectionofrevenue
(withallrevenuestillearmarkedforUAMS),itfurtherreflectstheeasewithwhichmodestdirected
taxesforlaudablepurposes(inthiscase,medicalresearch)canbeextendedwellbeyondtheir
specifiedsunsetdates,insomecasespermanently.Ataxintendedtohelpamedicalinstitutionpay
offaconstructionloaneventuallybecameapermanentsubsidyforthatinstitutiontousefor
whateverpurposesitseesfit,ontheassumptionthattheservicesitprovidesaredeemedvitalto
thehealthandbroaderwelfareofthestatesresidents.
Althoughtheextensionofthemixeddrinktaxin2005provokedgreaterattentionandcontroversy
duetotheoppositionofwell-organizedinterests(restaurantownersandthehospitalityindustry),
thosewhowouldactuallypaythetax(consumers)hadlikelyalreadybecomeaccustomedtodoingso
sincetheimpositionofthetaxinthelate-1980s.Consistentwiththelogicofsuchtaxesasawhole,
terminatingsuchaminortaxmatteredtothemmuchlessthanperpetuatingtheestimated$1.4
millionannualrevenuestreamitprovidedmatteredtoUAMS.AlmostentirelylostindiscussionofHB
2633wasthecontributionthemixeddrinktaxmadetothebroadertaxburdenforArkansans,who
werenowpaying,accordingtodatafromtheArkansasHospitalityAssociation(AHA),thehighest
taxesinthenationontheirMartinisandWhiskeySours.13
12AbernathyisquotedinArkansasNews,March23,2005;HoltinArkansasNews,March24,2005.
13ClaimsmadebyMontineMcNulty,ExecutiveDirectoroftheArkansasHospitalityAssociation.
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Consideredwithincontext,SB320arousedlittleopposition,perhapsduetothenatureofthat
whichwasbeingtaxed(cigarettesandcigarettesmoking),thedecliningandincreasinglyunpopular
grouppayingthetax(cigarettesmokers),andthepopularityofthecausetowardwhichthetax
moniesweredirected(breastcancerresearch).Supportforthisinterpretationcouldbefoundinthe
structureofthebillitself,whichbeginswithalongdiscussionofthethreatposedtothestates
citizensbybreastcancer.Inaddition,neitherthetitleofthebill(TheBreastCancerActof)norits
content(theactualimposedtaxwasnotmentioneduntilSectionFive)emphasizedthatitwasatax
billperse.
Oneofthemuchcriticizedtendenciesofdirectedtaxapproachesthesubsequentre-purposing
ofraisedrevenueoccursagainwiththemodificationofSB320intheformofHouseBill2522/Act
1698,passedjustfouryearslater(in2001).Despiteatitleincludingthephrase..,ToEnsureFunding
oftheBreastCancerResearchFund,HB2522actuallyreducedtheshareofrevenueallocatedbySB
320forsuchprograms(from90%to71%).Theremainingrevenue(29%ofthetotal)wasdirected
towardtwoprogramsMealsonWheelsandaprescriptiondrugwaiverfortheelderlythathad
norelationshiptotheoriginalpurposeofSB320.
AfurtherrepurposingoftherevenuegeneratedbytheoriginalSB320wouldoccurinboth2005
and2007,withpassageofHouseBill2629/Act2219andSenateBill223/Act1236.HB2629(2005)
wouldshiftmoneyasspecialrevenuetotheArkansasRxProgramFundandtheMiscellaneous
AgenciesFundfortheArkansasProstateCancerFoundation(inadditiontoMealsonWheels),while
SB223(2007)wouldearmarkrevenuetotheUniversityofArkansasMedicalCenterFund(inaddition
toMealsandWheelsandProstateCancer).AswiththepreviousmodificationofSB320intheform
ofHB2522,therewaslittlepublicdebateorattentioningeneralpaidtoeitherHB2629orSB223.
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Takentogether,theoriginalcigarettetaximposedbytheBreastCancerActof1997(SB320)
wouldberepurposedthreetimesoverthecourseofthenextdecade,resultinginareductionofthe
moniesallocatedtoitsoriginalpurposeandallocationstoarangeofcauseswithnorelationshipto
thatpurpose.Ratherthanmustersupportforandseektopassnew(andpotentiallyunpopular)taxes
orutilizemoniesfromgeneralrevenueforsuchcauses,anexistingtaxoriginallypassedwith
widespreadsupportbecausedeemedforaworthycausewasmodifiedtofundsuchdiverse
programsasprescriptiondrugs,MealsonWheels,andprostatecancerresearch.
There-purposingofrevenuefromdedicatedtaxesthusappearstohavebecomeamore
expedientmeansoffundingprogramsthanusinggeneralrevenue,raisingexistingtaxes,orcreating
newones.Again,onceataxhasbeenestablishedforaparticularpurpose,itbecomessusceptibleto
extensionandreallocationwithlittlepublicknowledgeorresistance.Thepublic,accordingly,tendsto
paymoreattentiontoproposedtaxincreasesthanextensionsormodificationsofexistingones.The
repurposingevidentwiththecigarettetax(theoriginalSB320)alsoconfirmsthefungibility
problemintrinsictodedicatedtaxation,byvirtueofthefactthatthetaxwasultimatelyusedtofund
anarrayofprogramsthatcouldhavebeenfundedfromgeneralrevenue.Bycreatingalternative
streamsofrevenuethatcanbeextended,modified,andrepurposed,dedicatedtaxesremovethe
needforlegislatorstomaketrade-offswhenfundingprogramsitbecomesunnecessarytomake
cutsinsomeprogramsinordertofundotherswhenprogramscanbefundedoutsideofgeneral
revenue.Theoverallimpactis,ascriticsoftenclaim,ahiddenincreaseinbothoverallgovernment
spendingandtaxburdenfortaxpayers.
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(communitycenters,athleticfacilities,zoorepairs,etc.).Suchproposalsareinvariablysupportedwith
claimsthatincreasedrevenuesarenecessarytobothmaintainanadequatelevelofcityservicesand
toencouragecommunityeconomicdevelopment.Theyarealsousuallyvotedoninspecial
electionsinwhichtheyaretheonlyproposalsontheballot.Anumberofsuchproposalshavebeen
recentlyapprovedbyvotersinArkansascities.Thosediscussedhereconsistofarepresentative
samplefromlarge(LittleRock),mid-size(Jonesboro),andsmall(Batesville)municipalities.
InSeptember,2011votersinthestatecapitalofLittleRockapprovedatwo-parthikeinthecitys
salestax,triplingtheratefromtheexistinghalfacenttooneandahalfcents,effectiveJanuary1,
2012.5/8oftheonecentincreasewaspermanentanddirectedtowardvariousunspecifiedcity
services;theremaining3/8wouldbeinplacefortenyearstofundalistofconstructionprojectsand
newtechnologies.Thecombinedtaxeswereexpectedtoraisecityrevenuebyroughly$500million
overthecourseofthenexttenyears.19
InAugust,2010votersinJonesboro(thelargestcityinnortheastArkansas,withapopulationof
roughly70,000)passedintolawahalfcentincreaseinthecitysalestax,raisingthetaxfromthe
previousonecenttooneandahalfcents.Thetaxhikewouldbeininplaceforfouryearsandmonies
raisedwouldbedirectedbycityordinancetowardfundingofitspoliceandfiredepartments.Itwas
claimedthattheamountofrevenuetobegenerated,estimatedat$6millionperannum,wouldsave
thejobsof40policeofficersand27firefighters,enhancepublicsafety,andcoveraprojected$4
millioncitybudgetdeficit.20
InMarch,2012voterswenttothepollsinBatesville,Arkansas(acountyseatwithapopulationof
roughly10,000innorthernArkansas)toapproveaonecentincreaseinthecitysalestax(boostingit
totwocentsoverall).Halfoftheonecentincreasewouldbetemporary,withrevenuesdirected
19LittleRock:OneCentTaxPasses,KATV.com,September19,2011
20JonesboroVotersOKSalesTaxIncrease,ArkansasNews,August11,2010.
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towardtheconstructionofamulti-purposecommunitycenter,whiletheotherhalfcentincrease
wouldbepermanentandallocatedtounspecifiedcitymaintenanceandoperations.Theballot
measurewasascaledbackversionofonethathadbeendefeatedthepreviousyearandwasnamed
The2012CommunityDevelopmentInitiative.Aswiththeearlierballotmeasuresthatwere
approvedinLittleRockandJonesboro,supportersstressedthepublicsafetyissueinBatesville,
includingthedirectionoffundstowardfirefightersandpolice.21
Intheory,thecastingofballotsinLittleRock,Jonesboro,andBatesvilleondedicatedtaxproposals
reflectdemocracyinaction;moreprecisely,theprogressivereferendumconceptinwhichthose
expectedtobearthecostsofaproposedtaxareallowedtoapproveorrejectitinadirectvote.There
isalsoreasontobelievethat,basedonalong-standingbodyofpoliticalscienceresearch,voterstend
tobemoreinterestedinandknowledgeableaboutissuesinlocalpoliticsthatarethoughttomore
directlyaffectthemthanissuesatthestateandnationallevels(aviewnicelycapturedinthequipby
formerU.S.HouseSpeakerThomasTipONeillthatallpoliticsislocal).Inaddition,itispossible
thataccountabilityandtransparencywouldbegreateratthelocallevelandthatgreaterscrutiny
wouldbeappliedtotheallocationofanymoniesraisedbydedicatedtaxation.
AlthoughsuchexpectationsseemconsistentwiththeexpectationsbehindtheAmericansystemof
federalism,theballotmeasuresinLittleRock,Jonesboro,andBatesville(andpresumablyinother
ArkansasandAmericancitiesaswell)alsodemonstratecertaindeficienciesthatruncountertosuch
assumptions.Themostobviousshortcomingistheuseofspecialelectionsoutsidethenormal
electioncycleandcalendar.ByholdingelectionsoutsideofNovemberandforwhichthereareno
otherissues/contestsontheballot,voterturnoutisinevitablydepressed-ineachofthecases
presentedhere,andalthoughthetaxesproposedwouldaffectalltaxpayers,turnoutrepresenteda
21BatesvilleFireDept.EyesBenefitsfromOneCentSalesTaxVote,KAIT8.comMarch8,2012.
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millionstreamofcapturedtaxrevenueovertenyearsintheLittleRockcase,forexample)thanfor
thoseresistingthem(avoidingapennyincreaseinthesalestax).
ConsistentwithsuchconclusionswerenewsaccountsaccompanyingpassageoftheLittleRocktax
increaseindicatingthatordinarycitizenswhowouldbeexpectedtopaythetaxwereunawareofit.
Inthewordsofonesupermarketowner,Idoubtthatmanyofthem(customers)areawareittook
effecttodayIrememberedthatitwasgoingup,butthenforgotaboutittillthismorning.22
AcertainfatiguefactormightbeaddedinthecaseoftheBatesvilletaxincrease,sincevoters
hadnarrowlyturnedbackasimilarproposedincreasejusttheyearbeforeandwereaccordinglyless
likelytomountacomparablelevelofresistancethesecondtimearound.Supportersofsuch
provisions,operatingwithobviouslygreatermotivation,cankeepcomingbackuntiltheysucceed;
opponentsarefightingadesperaterear-guardbattlelikelytoeventuallyendindefeatandprobably
perceivethecontestinthatfashion.Although,intheory,suchballotingallowseveryonetohaveasay
onthetaxestheywillbeaffectedby,theunderlyinglogicofspecialelectionsondedicatedtax
increasessuggeststhatatinypercentageofmoremotivatedvoterswillbeabletoenhancetheir
interestsandreceivebenefitsbypushinghighertaxesoneveryone.
Withinthiscontext,itispossiblethatdedicatedtaxproposalsatthelocallevelwouldbeless
likelytobeapprovedifvotedoningeneralelections(ratherthaninspecial,stand-aloneballots).
Giventhevastlylargerturnoutingeneral(November)elections,theinherentmotivationgapthat
tiltsthebalanceinfavorofsuchproposalswouldlikelydiminish.Undercurrentcircumstances,
however,theresorttospecialelectionsatthelocallevelfordedicatedtaxationworksinexorablyin
favorofincreasingtaxationandtheoveralltaxburdenforcitizens.
22LittleRockBusinessesAdjusttoSalesTaxHike,Fox16.com,January1,2012
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outcome.Thesmallernumberofcitizenswhobenefit,oftendirectlyfromsuchincreasedtaxeswillbe
suretovote,thelargermajorityonlymodestlyandadverselyaffectedbysuchhikesusuallywont.
AlsoofinterestwithrespecttolocaldedicatedtaxproposalsisthepatterndetectedintheLittle
Rock,Jonesboro,andBatesvillecasesthatturnoutvariesinverselywiththesizeofcityandthe
numberofregisteredvoters.Batesville,byfarthesmallestcity,hadthehighestturnoutasa
percentageofregisteredvoters(ataround40%).LittleRock,byfarthelargestcity,hadbyfarthe
lowestturnoutrate,inthevicinityof20%.Ifspecialelectionsatthemunicipalleveltendtofavor
passageoftheproposalsinquestionbecauseoflowturnout,thenpassageseemsevenmorelikelythe
largerthemunicipality,withanobviouscorrespondingimpactonastatesoveralltaxburden(atax
increaseinacityof300,000citizenshasagreaterimpactontheoverallstatetaxburdenthanone
passed,asinBatesville,inacityof10,000).
Thebroaderconclusionofthisanalysisisthattheuseofdedicatedtaxincreasesatboththestate
andlocallevelscontributestohigherlevelsofgovernmentspendingandhigherburdensfor
taxpayers.Theydosoinlargepartbecause,asCowleyandHoffersuggest,theyeffectivelymask
theircontributiontothetaxburdenovertime.Ratherthaninsistthatnewexpendituresforworthy
causesbefundedfromgeneralrevenue,andthatcurrentfundingforlessworthycausesbe
accordinglyreduced,newrevenuestreamsareestablishedoutsideofgeneralrevenue.Once
established,suchtaxesseldomgoaway(asusuallypromised)andareoftenincreasedand/orre-
purposedfornewprojects(orprojectspreviouslyfundedfromgeneralrevenue)withlittletaxpayer
knowledge/resistance.Thefocusofthetypicaltaxpayerisonthenextproposedtaxincrease,not
whatishappeningwiththosealreadyinplaceandtowhichtheyvebecomeaccustomed.
Theoldstoryaboutthefroginthepotwhichboilstodeathasthetemperatureisslowlybut
imperceptibly(forthefrog)increasedovertime,butwhichwouldjumpoutofthepotifthe
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CONCLUSION
PlacingtheuseofdedicatedtaxesintothecontextofArkansashightaxburdenandnegative
businesstaxclimatefurtherreinforcesthecentralconclusionofthisanalysisthattheincreasing
resorttosuchaformoftaxationdrivesupoverallgovernmentspendingandtaxburdens.Along
theselines,thoseproposingsuchtaxhikes,atboththestateandlocallevel,invariablytargetpopular,
worthycausesthataresaidtocontributetolong-termeconomicdevelopment.Itisoftensaidbysuch
supportersthatArkansansneedtofundsuchendeavors,evenifbydedicatedrevenuesoutsidethe
traditionalgeneralrevenuetaxstream,forthesakeofprogressandtoenhanceArkansasabilityto
attractbusiness,investment,andjobs.
Theproblemwithsuchanapproachis,ofcourse,thatsuchsmalltaxes(apennyhere,another
couplethere)forsuchworthycausesultimatelyadduptoacrushingcumulativetaxburdenthatends
updrivingbusiness,investment,andjobstoneighboringstateswithlowertaxburdens.A
contradictionthereforeexistsbetweenendsandmeans,asArkansansandtheirrepresentatives,with
oftenthebestofintentions,approveadditionaltaxhikesforspecificpurposesforthesakeof
progressonlytoseetheresultinghightaxburdenmorethancancelsoutwhatevereconomic
benefitsaccruefromthenewprograms,roads,orfacilities.Intheend,atoohightaxburden
(particularlyincomparisontoneighboringstates)drivesnotjustinvestmentandjobstowardsuch
states,butalsothegreatertaxrevenuesthatagrowingeconomyproduces.Theclassicviciouscycle
ensues,inwhichastagnanteconomyreducestaxrevenues,requiringnewtaxlevies-ofteninthe
formofdedicatedtaxes-thatonlyfurtherweakentheeconomy(andfurthershrinkthetaxbase).
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Thus,amongthequestionsthatArkansastaxpayersshouldaskthisNovember,whenvotingonthe
proposedhalf-centincreaseinthestatesalestaxforhighwayconstruction,iswhetherthebenefits
willactuallymaterializeaspromisedandwhetherthetaxwillremaininplaceafter(asseemsthe
pattern)thepromisedsunsetdate.Moretothepoint,theymightwishtoaskwhetherArkansashas
beenmovingintherightdirectiononthetaxfrontinrecentyearsandwhethertheywishtoseeit
moveevenhigherupthelistofstateswiththemostcrushingtaxburdens.25
25Increasingthathalf-centsalestaxwouldmoveArkansaspastIllinois,Maine,Maryland,Massachusetts(!),
PennsylvaniaandVermont,intoatiewithMinnesotaforthe7thhighesttaxburdenontheTaxFoundationranking.
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Appendix of Cited Arkansas State Bills
Cigarette Taxes
1. SB 320/Act 434 Passage 1997 81st General Assembly, Regular SessionTitle - "THE BREAST CANCER ACT OF 1997."Effect Placed a tax on cigarettes to fund Breast Cancer ResearchFull Bill -
http://www.arkleg.state.ar.us/assembly/1997/R/Pages/BillInformation.aspx?measureno=SB320
2. HB 2522/Act 1698 Passage 2001 83rd General Assembly, Regular SessionTitle - AN ACT TO AMEND THE DISTRIBUTION OF THE ADDITIONAL TAX ONCIGARETTESEffect Redistributed revenue from Cigarette tax put into effect by SB 320Full Bill -
http://www.arkleg.state.ar.us/assembly/2001/R/Pages/BillInformation.aspx?measureno=HB2522
3. HB 2629/Act 2219 Passage 2005 85th General Assembly, Regular SessionTitle - AN ACT TO PROVIDE FUNDING FOR ADMINISTRATIVE COSTS OF THEARKANSAS RX PROGRAMEffect Provided funding for Arkansas Rx Program by redistributing revenue from
cigarette tax created by SB 320
Full Bill -
http://www.arkleg.state.ar.us/assembly/2005/R/Pages/BillInformation.aspx?measureno=HB2629
4. SB 223/Act 1236 Passage 2007 86th General Assembly, Regular SessionTitle - AN ACT TO MAKE AN APPROPRIATION FOR PERSONAL SERVICESAND OPERATING EXPENSESEffect Redistributed revenue from additional cigarette tax created by SB 320Full Bill -
http://www.arkleg.state.ar.us/assembly/2007/R/Pages/BillInformation.aspx?measureno=SB223
5. SB 671/Act 1211 Passage 1991 78Th
General Assembly, Regular SessionTitle - "AN ACT TO LEVY AN ADDITIONAL TAX OF ONE CENT (1) PER PACKOF CIGARETTESEffect Increased the tax on cigarettes to credit of the Aging and Adult Services FundFull Bill -
http://www.arkleg.state.ar.us/assembly/1991/R/Pages/BillInformation.aspx?measureno=SB671
6. HB 1204/Act 180 Passage 2009 87th General Assembly, Regular Session
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Effect Altered the Sunset Clause of SB 576 so that the tax shall not extend beyond June30, 2007. This extended the tax another two (2) years totaling six (6) since the original
bill SB 576Full Bill -
http://www.arkleg.state.ar.us/assembly/2005/R/Pages/BillInformation.aspx?measureno=
HB1691
4. SB 1004/Act 869 Passage 2007 86th General Assembly, Regular SessionTitle - AN ACT CONCERNING THE RETAIL BEER TAXEffect Put into place on July 1, 2007 (Day after the extended tax from SB 576 expired)
a new tax on BeerFull Bill -
http://www.arkleg.state.ar.us/assembly/2007/R/Pages/BillInformation.aspx?measureno=SB1004
5. SB 248/Act 982 Passage 2011 88th General Assembly, Regular SessionTitle AN ACT TO MAKE VARIOUS CORRECTIONS TO TITLE 3 OF THEARKANSAS CODE OF 1987 CONCERNING ALCOHOLIC BEVERAGESEffect Put into effect a new tax on Beer with revenue being added to the GeneralRevenue FundFull Bill -http://www.arkleg.state.ar.us/assembly/2011/2011R/Pages/BillInformation.aspx?measure
no=SB248