February 09, 2007

Arkansas: Grocery Tax Cuts on the Move

2007 is barely a month old, but cutting the grocery tax has already emerged as the hip new state tax fad of the year (if such a thing is possible). Lawmakers from Tennessee to Utah to Idaho to Mississippi are discussing it. But things appear to be moving fastest in Arkansas, where the House of Representatives has unanimously approved a cut in the state sales tax on food.

The House-passed bill would cut the state sales tax on food from 6 percent to 3 percent, following up on a campaign pledge by then-candidate Mike Beebe in last fall's gubernatorial race. And every indication is that the Senate will endorse the bill as well.

It wasn't always smooth sailing, though: as the legislative debate opened in January, progressive policy advocates publicly questioned whether a cut in the food tax was the best option for Arkansas tax reform. In particular, Arkansas Advocates for Children and Families released a January report comparing the benefits of a grocery tax cut to more targeted tax reforms such as an Earned Income Tax Credit (EITC).

The AACF report was right on target: an EITC would do a much better job, at a much lower cost, of improving the fairness of Arkansas' tax system, than Beebe's pet idea of cutting the grocery tax. Not surprisingly, Beebe took issue with AACF's stance. Also not surprisingly, he was unable to attack the AACF report on its merits, and chose instead to reiterate that a food tax cut would benefit more people.

This disagreement with AACF's argument was utterly insubstantial: their whole point is that an EITC would offer targeted tax tax cuts to a smaller group of fixed-income families, and Beebe's entire criticism was that a food tax cut would offer tax cuts to more people. Which amounts, of course, to agreeing with AACF's analysis.

The food tax cut will likely be law a week from now, but this debate will remain important. As long as Arkansas continues to rely heavily on the sales tax, low-income families will get the shaft under Arkansas' tax system. Whether this year or next year, an EITC will remain a great step towards achieving a minimal level of tax fairness in Arkansas.


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