Man Bites Dog: Genuine Tax Reformer?

The Fayetteville Free Weekly has an interesting profile of state Rep. Phillip Jackson, R-Berryville, chairman of the House Revenue and Taxation Committee: "Time for an Arkansas Tea Party?"

Jackson is, rara avis in terra, a genuine tax reformer.

One of his targets is the Arkansas state constitution's requirement for only a 51% legislative majority to raise the sales tax, but a 75% majority to increase income and property taxes.

“It is much easier to get a majority of 51 percent than it is to get 75 percent of the members of the legislature to support any kind of tax increase,” Jackson said. “So, quite often, the sales tax is the first one looked at and it is the easiest one to get passed.”....

“Arkansas ranks about fourth highest of all the states in the United States with how much its citizens are paying in sales taxes,” Jackson said. “The average in Arkansas , if you figure in local and state sales taxes, is that most Arkansans are paying 8.8 percent in sales taxes.”....

Jackson said the state constitution should be amended so that all types of taxes require the same majority in the state legislature for passage....

Jackson admittedly doesn't know what the voting threshold should be to increases taxes -- whether it be 51, 60, 65, 70, or 75 percent -- but stressed he thinks the fairest system would be that all types of taxes should be treated the same.

Jackson is also an enemy of corporate welfare.

....the state tax code calls for tax “loopholes” for various types of businesses. Jackson said the loopholes should be closed because some types of businesses get favored while others do not get the same special treatment.

Jackson said that if small business owners really understood Arkansas tax laws, they would be irate. The laws allow for some large corporations--who compete directly with the small businesses--to receive a competitive advantage because some of the tax laws favor corporations that are providing the same goods and services as the small businesses.

Jackson said large corporations have the financial resources to hire tax attorneys who can find ways to practice “tax avoidance” and utilize loopholes in state tax law. Jackson said that most small businesses can't afford to hire lawyers to take advantage of those same legal loopholes.

He said large corporations save a lot of money with loopholes despite paying attorneys large sums of money to discover those loopholes. Thus, with a lower tax structure than the small business owners, these same large corporations have a lower cost structure, which means they can afford to pay their employees more money than smaller businesses, who are forced to tighten their financial belts more stringently. One unfortunate net effect of this tax disparity system is that large corporations are able to hire away talented employees from small businesses.

“We should close many of the loopholes,” Jackson said.

Here's my letter to Jackson:

Rep. Jackson,

I read with interest the recent profile of you in the Fayetteville Free Weekly, and was pleased to see that you are an advocate of genuine tax reform. Too often these days, so-called "tax reformers" seem to be looking for ways to remove taxes from the returns on concentrated wealth, and put them onto the wages of labor. Your approach, on the other hand, seems to be similar to that of the Democratic Freedom Caucus; as Thomas Knapp of the Missouri chapter put it:

"We advocate tax cuts and ending welfare," says Thomas Knapp, 38, of St. Louis, a member of the new DFC affiliate. "But we tend to favor cutting taxes from the bottom up instead of from the top down, and to place a higher priority on ending corporate welfare than on ending the food stamp program for the working poor."

Generally, I think the best approach to tax reform is to shift taxes off of the products of human labor (which can be produced indefinitely in response to demand), and onto unearned wealth from the monopoly of land, and the consumption of natural resources.

One step in the right direction, specifically, would be to shift the property tax off of buildings and improvements, and entirely onto site value. The sales tax on groceries and medicine, likewise, and the personal property tax, should be replaced with a revenue-neutral increase in the tax on site value. The effect of such a tax shift is to encourage labor and productivity by removing punitive taxes on it. At the same time, the land value tax, by encouraging land to be used productively rather than held vacant for speculative purposes, increases the demand for labor. In areas where such tax shifting has been tried (quite a few localities in Pennsylvania, for instance, where Georgist ideas were influential), it has led to construction booms, lower housing costs, and falling unemployment.

A good many free market economists (from Adam Smith to Milton Friedman) believe a tax on land value is the least market-distorting tax. Taxes on labor and capital discourage production. But since the supply of land can't be increased by human labor in response to demand, its price is governed by the same laws as rare paintings and other collectibles; a large portion of increased economic output, as a result, tends to get sucked down the tubes as rent payments to those who did nothing to increase its value.

Savings from reduced spending should be translated into increasing the personal income tax exemption.

I'd also like to see government move toward funding services, as much as possible, from user fees. This is especially true of transportation; government subsidies to transportation, from general revenue, are one of the most harmful of the subsidies to big business that you talked about in the Free Weekly article. Subsidies to transportation are, in practical terms, subsidies to businesses with the highest distribution costs; the effect is to artificially shift competitive advantage from small producers for the local market, to big producers distributing over a large area. If highways were funded by tolls or a weight-distance tax on trucks, and airports deprived of the power of eminent domain, we'd be buying a lot more stuff made by small factories close to where we live.

Finally, we should be shifting from regulatory prohibitions on pollution to a reliance on harsher civil damages, and severance taxes on the extraction of non-renewable resources. As the saying goes, taxes should be on what we take rather than what we make.

All these policies tend to create common ground between greens and progressives who are concerned over pollution and the concentration of unearned wealth, and libertarians who believe social ills are better solved through the free market and its price system than through intrusive government regulation.

Note--That's the original, direct Knapp quote above; I paraphrased from memory in my letter to Jackson.