Testimony: Tax Burdens and Tax Triggers in Arkansas

With only a month until their final recommendations are due, the Arkansas Tax Reform and Relief legislative task force is working furiously to develop taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. reform options for the Natural State. Today, the task force asked me to present again on several key topics: Comparing Arkansas’s tax burden to other states, and how to design a tax trigger.

My presentation, which is below, first included a discussion about how to evaluate tax policies. I’ve talked about these items to the task force on many occasions, but I wanted to highlight these principles one additional time. All tax policies represent trade-offs, but they should be evaluated through the lens of neutrality, simplicity, transparency, and stability.

Additionally, the task force was quite interested in discussing equity and how Arkansas’s tax code compares, particularly on the question of regressivity. Data from the Institute on Taxation and Economic Policy (ITEP) has been frequently citied during conversations, so I took some time to walk through my qualms with their data. Their data tends to overstate regressvitiy in several ways, including the selective use of the federal tax code.

Finally, I discussed how to design a tax trigger. Tax triggers, when well structured, can be a helpful tool to balance revenue adequacy and tax reform. Designing a tax trigger can be tricky, however, as states like Oklahoma illustrate. Because Oklahoma’s tax trigger did not include the proper baseline, it continued to cut revenues while the state rebounded from the Great Recession.