Arkansas Voters Should Reject Permanent Extension of Sales Tax Hike

In 2012 a majority of Arkansans voters approved a ballot measure to raise the state sales tax rate by half a penny to help pay for infrastructure across the Natural State. Fortunately for taxpayers, that half-cent tax is temporary and set to expire at the end of 2023. The expiration of this sales tax hike will collectively save families hundreds of millions of dollars annually. But taxpayers beware: government officials and other special interest groups have a measure on the November ballot to make that temporary tax hike permanent and horde more of your hard earned money. 

As famed economist Milton Friedman used to say, “nothing is so permanent as a temporary government measure.” Surely many Arkansans voters, who would normally oppose tax increases, supported the measure because it was temporary, and after all, the money is used to pay for the bond financing of popular new infrastructure projects. But this plus-up in the sales tax rate costs Arkansas taxpayers close to $200 million each year, a significant sum that should expire, not be kept in place forever. 

As an organization that closely follows these tax tactics, a “temporary” tax increase is a classic bait-and-switch. 

Essentially, the goal of these tax proposals is to get residents to support paying slightly higher taxes in the short-term for popular items, like infrastructure, education, or healthcare. Then, when a tax increase is set to expire, or a bond is paid off, the government tries to bamboozle the public by keeping the higher rate by arguing that a continuation of a tax increase isn’t technically a tax increase. It’s like magic, but taxpayers are the ones being tricked. 

Not only is the messaging around this take hike misleading, but using a consumption tax to fund road construction is poor tax policy and the sales tax is a regressive tax, punishing the poorest the most. Since low-income consumers spend a larger portion of their income on everyday goods, they end up paying a larger share of their income on sales tax. More than 17 percent of Arkansans live at or below the federal poverty level, and letting the tax expire will put valuable extra dollars in the pockets of families - money that will go a long way for struggling people. 

Ensuring that roadways are structurally sound and in drivable condition is an important government function, and we support sound infrastructure policy. However, the financing of roads should fall on those using the road, which is why gas taxes are the primary funding source for surface transportation upkeep. With a higher sales tax, all taxpayers, whether they own a car, take the bus, or ride their bike, will have to pay for that upkeep by paying higher rates at the checkout counter. If the state really wants more money for roads, they should retool their construction regulations to make each dollar more efficient, raise user fees, or redirect funds from the general fund. 

While Arkansas’s current state sales tax rate of 6.5 percent is already higher than most states, the nonpartisan Tax Foundation analysis finds that once local sales tax rates are accounted for, Arkansas has one of the highest sales tax rates in the country. When combined, the average state and local sales tax rate is 9.53 percent, second highest in the nation and higher than “high tax” states like California, New York, and Illinois. On a per capita basis, the average Arkansan pays an estimated $1,127 in sales tax annually, twelfth highest in the nation, according to 2017 data (the latest data available)

It’s surprising that Governor Hutchinson is a staunch supporter of this misguided tax trickery considering his strong record of keeping more money in the pockets of Arkansans. Over the past five years, the Governor has championed three significant tax cuts that have made the state more competitive and attractive to private sector business investment. These packages have totaled close to $300 million annually put back into the pockets of taxpayers from across the income scale. The Governor should double down on this philosophy and work to keep lowering rates in the 2021 legislative session, not focusing on raising taxes on consumers. 

Particularly in the midst of a global health and economic emergency, the last thing taxpayers need is more tax gimmicks that cause them to pay higher prices forever. 

Sadly for taxpayers, these “temporary” levies serve as politically convenient short-term tools to ease the public backlash from tax hikes. Whether a politician wants to admit it, supporting the continuation of a tax increase is still a tax increase. So this November, voters should vote with their wallet in mind and reject this proposed constitutional amendment tax hike.