The most egregious fallacy of our time is the idea — one repeated endlessly in this and any other election year — that the key to economic development — the creation of business and the movement of people — is lower taxes. Despite numerous experiments with the idea, in Washington and a number of states, including Arkansas, it almost never works out that way and often makes things worse, as we have seen recently in Louisiana, Kansas, West Virginia, and Oklahoma.
The other day, I pulled my dusty copy of Accelerating Economic Growth in Arkansas off the shelf. It had been 50 years since I studied the 186-page tome, written in 1964 by the Arkansas Economic Expansion Study Commission, a blue-ribbon group of 11 conservative businessmen and a country lawyer who were commissioned by the legislature and the governor to find out why Arkansas lagged far behind other states in economic growth and what to do about it. The commission was staffed by the University of Arkansas College of Business (this was before Walmart bought it) and economists at the Industrial Research and Extension Center.
Here is what they concluded about taxes: The level of state and local taxes are never a significant factor in neither where a company locates nor where people choose to live. They cited economic research plus common sense. Arkansas had always been at the bottom or near it in state and local taxes but had suffered net outmigration for most of the century and benefited little from the movement of industry to the Sun Belt. Industry often located in states with higher taxes, they said, because low taxes “may indicate a low level of the community’s services [including well-educated people] that are necessary for industry to be profitable and successful.”
They suggested much greater use of personal and corporate income taxes at the state level and wider authority for cities, counties, and schools to raise property taxes and levy new forms of taxes. The state lagged far behind in education, public health, and transportation, and the state had to invest heavily in those services if it were to ever to prosper.
Most of the book was devoted to raising the educational achievement of people. A few of its recommendations were adopted in the next two decades, including a system of community colleges and technical schools.
“We cannot advance economically without the leadership of education,” the study concluded. “We, therefore, call for the highest priority in the commitment of public and private support to our education system.” It recommended that 90 percent of general revenues above $127 million each year be earmarked for public schools, colleges, and technical schools. The state was dedicating a little more than 50 percent of general revenues for education. Now, it is far less.
Yes, they invoked a founding father, the Virginian Thomas Jefferson:
“Preach, my dear Sir, a crusade against ignorance; establish and improve the law for educating the common people. Let our countrymen know that . . . the tax that will be paid for this purpose is not more than the thousandth part of what will be paid … if we leave the people in ignorance.”
The report scoffed at the popular excuse that spending a lot of money on education was futile, partly because it would take many years to bear fruit.
One man who took the report to heart was Winthrop Rockefeller, who as head of the new state Industrial Development Commission, had been responsible for such development as the state had experienced the past decade — a bunch of cut-and-sew and other factories that paid minimum wage. He ran for governor four times to implement the study’s solutions: a raft of tax increases to upgrade education and health care, the latter by taking advantage of the new federal Medicaid law. He had given his own money to build a new school in the nearby town of Morrilton and a medical clinic in the hamlet of Perryville. The heavily Democratic (132 to 3) legislature defeated all his taxes, in a regular session and again at a special session. His income tax bill would have raised the top rate from 5 to 12 percent for rich men like him.
He left office in 1971 in bitter defeat, remorseful that he had failed to deliver his goal of transforming his adopted state into an educated and prosperous populace.
Now, nearly every politician’s dream is to cast votes to cut taxes, the more the better. It is an end unto itself.
Ernest Dumas is a longtime political writer and columnist, whose work is featured in the Arkansas Times. This essay is adapted from his most recent column there.
