LITTLE ROCK — It may well be Gov. Mike Beebe’s chance to do that which no other governor has done - a veritable Nixongoes-to-China moment.

Beebe, ever the master of state government’s moving parts has for 25-plus years - first in the state Senate and now in the governor’s office - maneuvered over and around other governors and now members of the Legislature. A virtual lock for reelection next year, he could begin planning for his second term, which should include the arduous task of reforming the state’s tax code so that it puts the state on a long-term path to prosperity.

After years of tax hikes, carve outs, finely worded exemptions, Arkansas’ tax code has become a virtual patchwork quilt. It’s been cobbled together by policymakers, who were either responding to the pressures of the day or trying to reward their favorite interest group.

As a result, the tax code, with its high taxes on sales, income, property, corporate income and even capital gains, has helped create an inhospitable economic environment for individuals, families, small businesses and corporations - at least those who haven’t employed wellconnected lobbyists.

It’s inequitable, doesn’t maximize state revenue, and certainly isn’t pro-growth with respect to capital formation and job creation. At 7 percent, Arkansas has one of the highest income tax rates in the region.

Likewise the state’s 6.5 percent tax on corporate income is higher than rates in Mississippi,Missouri, Oklahoma, Tennessee and Texas, neither of the latter have an income tax.

The state’s tax rates should be either in line with, or just under, those in the region.

For his part, Gov. Beebe has shown interest in job creation.

Also, lifting Arkansas’ per capita income rank has been a stated goal of his administration since day one. Lawmakers have given him the resources - through his so-called “quick-action closing fund” - to lure prospective companies to the Natural State with various financial incentives.

With respect to income, the governor recently has begun touting the good news that in 2008, the state’s per capita personal income rank moved from 47th to 46th. Unfortunately, the reason for the change is most likely due to a short-term phenomenon: Last year, other states began feeling the negative effects of the economic recession - job losses and plunging incomes - before Arkansas.

According to the U.S. Bureau of Economic Analysis, through the first and second quarters of this year the state’s income rank had fallen back to 48th. The bureau’snumbers show that since the third quarter of 2008, incomes have fallen off rather steadily, and that the negative income growth, - 0.4 percent in the second quarter of this year - would have been worse had it not been for the boost from transfer payments from the federal government’s stimulus package, the American Recovery and Re-Investment Act, which passed earlier this year.

According to the bureau, ARRA payments - food stamps, Social Security and unemployment insurance - contributed as much as 0.8 percentage point to second quarter personal income growth in Arkansas.

So the question remains: How can we get the state’s economic ship moving in the right direction, so everyone is rewarded rather than the handpicked few that are fortunate enough to be exempted from certain taxes or given an “incentive.”

Only a governor like Beebe, with his vast repositories of political capital and knowledge of the system, could take on the tough task of reforming the tax code. If he decided to do it, not only would he instantly face stiff opposition from lawmakers who are apt to want to protect their friends, but the bureaucrats at the Department of Finance and Administration who would, most certainly, try to stifle any true reform effort.

On the other hand, the governor would have numerous allies in the fight should he choose to do it.

DAVID J. SANDERS IS A COLUMNIST IN LITTLE ROCK.

Opinion, Pages 5 on 11/05/2009

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