The state of Arkansas has a record budget surplus. The federal government is running record budget deficits. It is not a coincidence.
The state ended the fiscal year with a surplus of $ 945.7 million, more than double its previous record of $ 409.3 million in 2007, as reported by the Arkansas Democrat-Gazette. Combined with other savings, the state now has $ 1.17 billion in reserves.
The surplus has occurred for several reasons, not the least of which is all the borrowed money the federal government has poured into the state, and all other states, in response to the COVID-19 pandemic. .
How much money went into Arkansas? Schools and the Department of Education have received or will receive nearly $ 2 billion in new one-time funds to be spent on COVID-related spending over several years. And this is only an area of government.
Uncle Sam’s generosity with our grandchildren’s money isn’t the only reason the state is so far in the dark. Due to COVID, the state moved its tax payment deadline from April to July last year, meaning that taxes were paid in this last fiscal year that would have been paid in the previous one. . The state also began collecting internet sales taxes in 2019, a year before online sales increased during the pandemic. It was the right time. And to their credit, lawmakers budgeted conservatively assuming the COVID recession would be worse than it was.
Now tax cuts are almost a certainty. After slashing the top income rates from 6.9% to 5.9%, Gov. Asa Hutchinson plans to call a special session later this year to reduce them again, to 5.5% over two years. The Democrat-Gazette reported Senator Jonathan Dissman, R-Beebe, co-chair of the Joint Budget Committee, saying lawmakers were trying to determine “what the real economy is.” It is careful.
As for the future, there has been talk of completely eliminating income tax. Lieutenant Governor Tim Griffin pushed the idea when he was running for governor; he is now a candidate for the post of attorney general. The two remaining Republican gubernatorial candidates, Sarah Huckabee Sanders and Attorney General Leslie Rutledge, have expressed support for the idea. Nine states have no income tax, including neighboring Tennessee and Texas, and it is believed that people, especially the wealthy, will take this fact into account when deciding where to put their homes and homes. business.
To abolish or significantly reduce the state’s income tax, Arkansas would have to either increase other taxes – real estate or sales – and / or make significant cuts in spending. He cannot rely on all this federal money indefinitely.
That’s because at the same time the Arkansas bank account bursts, Uncle Sam breaks the bank. The Congressional Budget Office released its latest projections last week showing the federal government will spend $ 3 trillion this year, which it does not have. Budget deficits over the next decade will reach $ 12.1 trillion, which can be optimistic.
The national debt – the accumulation of all annual budget deficits over time – had not even reached $ 3 trillion in 1989. This means that the US government will create as much debt in a fiscal year as it does. he had them at the end of the country’s top 200. On July 1, the debt stood at nearly $ 28.5 trillion.
Here’s another way to think about $ 3 trillion: that’s about $ 9,000 for every American living today. So, whenever anyone marvels at the performance of the economy during the pandemic, including Arkansas’ record budget surpluses, remind yourself how much the economy is supported by borrowed money.
Arkansas lawmakers in particular should keep this in mind. The budget surplus is in part the result of good policy, but Arkansas also won the lottery – getting money it didn’t really win. Like all lottery winners, he must decide what to do with his newfound wealth.
When you don’t really know what it is, the safe thing to do is save most of it.
Steve Brawner is a syndicated columnist published in 16 outlets in Arkansas. Email him at [email protected] Follow him on Twitter at @stevebrawner.