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Support House Bill 1002 to Lower the Tax on Capital Gains and Spur Job Growth
An Open Letter to the Arkansas Senate Committee on Revenue & Tax

February 22, 2011

Dear Chairman Teague and Members of the Committee:

     On behalf of the National Taxpayers Union’s (NTU)’s nearly 3,200 members in Arkansas, I urge you to support House Bill 1002 (HB 1002), which would eliminate the Arkansas’ tax on capital gains on property and new investments in the state. The Arkansas House already passed HB 1002 by vote of 53-43.

     Arkansas’ state and local tax burden as a percentage of state income is the 14th highest in the nation and higher than any of its neighbors, according to the non-partisan Tax Foundation. Moreover, Arkansas’ business tax climate ranks only 40th out of 50; even economically depressed Michigan performs better than Arkansas in this regard. What’s worse, Arkansas borders a state without an income tax (Texas) and a state without a broad-based wage tax (Tennessee). As Texarkana’s adverse experience in coping with a higher state income tax rate in the1970s (and its resurgence after enactment of an exemption) has clearly demonstrated, tax competition between the states should not be taken lightly. To grow the economy by attracting investment and jobs, Arkansas needs to be more aggressive toward improving its tax climate.

     HB 1002 would significantly strengthen Arkansas’ tax competitiveness. By eliminating the tax on capital gains generated by property and new investments in the state, HB 1002 will help to enhance business activity and employment opportunities. Additionally, although some predict that HB 1002 will “cost” the state in foregone tax collections, there is strong evidence to suggest that eliminating the capital gains tax in this manner will likely produce more revenue for Arkansas in the long run. The last five reductions in the federal capital gains tax all increased the federal government’s revenue. Further, the Southern and Southeastern regions of the U.S. already boast of many states with lighter tax burdens or lower rates than Arkansas. Florida and Texas for example, do not impose a capital gains tax at all, whereas others offer less harsh income taxes overall. In fact, just a few months ago, Missouri voters enacted a ballot measure that will prohibit the imposition of any new local-level earnings taxes. Now activists are crafting a plan that may eliminate Missouri’s state-level income tax entirely. With developments like these, Arkansas should not risk falling further behind in tax policy.

     With the state’s unemployment rate currently at 7.5 percent, Arkansans are counting on their elected officials to remove all obstacles to a recovery. Dramatically reducing the capital gains tax as envisioned in the legislation now before you would go a long way in spurring investment, job creation, and economic growth in the state. Therefore, our members hope that you will support HB 1002.


John Stephenson
State Government Affairs Manager