Leader Blues

Monday, February 05, 2007

EDITORIALS>>Go slow on tax breaks

At some point last year, the poor became fashionable again. It could have been when Mike Beebe, the Democratic candidate for governor, said he was going to give poor people a tax break on their groceries.

All the other candidates for governor joined in and promised even more of a grocery tax break, so after the election it seemed like a done deal. The condition of the poor had not been rising with the boats of the rich and even of the middle class, so since there was some slack between state tax receipts and government spending, help could be extended to the needy without jeopardizing state services.

Nearly a month into the legislative session, it is safe to predict that most of the working poor will get a little relief, either by the rollback of the state sales tax on groceries to 3 percent or an income tax credit for individuals earning up to $25,000 a year and couples earning up to $50,000.

Gov. Beebe’s proposal to halve the grocery tax sailed through the Senate 35-0 and will pass the House, too, if it can get out of the House Revenue and Taxation Committee, which is problematical. The counter plan is House Speaker Benny Petrus’ proposal for an income tax credit of $75 per dependent for families under the income threshold.

Arkansas cannot afford to do both without cutting some services or forgoing any further aid to the public schools and colleges.

Cutting the sales tax on groceries will mainly be a middle-class benefit because most of the poor — the 750,000 or so Arkansans whose nutrition comes from food stamps and other government programs (including those in nursing homes) — don’t pay taxes on most of their foodstuff now.

If the state in a year or two must raise taxes again when revenues fall short, as happened the last time that taxes were cut, in 1997 and 1999, then the real poor will wind up worse off.

Petrus’ targeted income-tax cut will directly help hundreds of thousands of the working poor, but it has a major shortcoming itself. It is not fundable like the federal earned income-tax credit, so tens of thousands of the poorest workers, those earning too little to have much of an income-tax liability, will get no help. That ought to be changed.

But there is a worse problem. Riding on the crest of the wave of concern for the poor are a batch of other tax breaks far less worthy. If they are enacted, the state will find its help to education curtailed.

Having got most other purchases exempted from the sales tax in past legislative sessions, manufacturers want to exempt their electricity and gas purchases.

Now, if we really wanted to help poor people, all of them, exempting their utilities — electricity, gas and water — from the sales tax would make a difference. (Yes, we know that the very poor can apply to get a tax exemption on their light bills, but not many know to apply.) But to exempt steel mills and other producers from taxes that poor people have to pay seems, well, out of kilter.

Finally, the other tax bill for the “poor” that is making its way through the legislature, an increase in the non-Social Security retirement income exemption from $6,000 to $10,000, is no help to the genuinely poor. Its main beneficiaries will be those with high retirement incomes.

If all these tax bonanzas pass — more are on the way — the time will not be far away when the legislature will meet in emergency to find new money to protect services. And the poor won’t be spared.