In his post a while back about Secretary of State candidate Mark Martin’s lack of a coherent platform, Jeff linked to Martin’s “Off The Marble” blog. The linked post, entitled “Tax Creep, Liberal Creeps, and the Arkansas Middle Class,” was a diatribe against Arkansas’s failure to adjust the tax brackets for inflation on a yearly basis. According to Martin,
The Arkansas legislature passed a law in the late 1990s that allows the Arkansas Department of Finance & Adminstration (DFA) to make adjustments in response to [inflation based on Consumer Price Index numbers]. Have they done it? Hell no! This is a perfect example of putting unelected officials in charge of doing the right thing by the people of Arkansas.
To prove his point, Martin pointed out that the Consumer Price Index (CPI) — “a nearly universally accepted measure of inflation” — was 39.900 on January 1, 1971, when the current tax code took effect, and was 212.714 in March of 2009 (Martin’s post was originally written in May of 2009). This, according to Martin, was a 533% increase due to inflation, which should be factored into the tax bracket cutoffs. Martin then multiplied the original statutory cutoffs by 533% and gave us a handy new table for where he believed the tax cutoffs should lie.
Now, here’s where Martin’s post gets interesting; he was apparently familiar enough with the Arkansas Code to find section 26-51-201, which contains the tax cutoffs he was complaining about in the post, yet he apparently didn’t bother to read that entire statute, as subsection (d) reads:
(2) For purposes of subdivision (d)(1) of this section, the cost-of-living adjustment for any calendar year is the percentage (if any) by which the CPI for the calendar year preceding the taxable year exceeds the CPI for the calendar year 1997, not to exceed three percent (3%). The CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on August 31 of such calendar year. “Consumer Price Index” means the last Consumer Price Index for all urban consumers published by the Department of Labor.
(3) The new tables, as adjusted, shall apply for tax returns filed for taxable year 1999 and thereafter, and shall be used by the director in preparing the income tax withholding tables pursuant to § 26-51-907.
All of this means, of course, that Martin’s premise — that the income tax is not adjusted for inflation based on the CPI — is false. However, if he’d bothered to do a little research before going off half-cocked on his screed, he would have found, as I did in less than 30 seconds, this document at the DFA website (emphasis added):
Another 30 seconds would have brought him, as it did me, to the current tax tables:
At Least Not More Than Tax Rate $0 $3,899 1% $3,900 $7,799 2.5% minus $ 58.49 $7,800 $11,699 3.5% minus $136.48 $11,700 $19,599 4.5% minus $253.47 $19,600 $32,599 6.0% minus $547.45 $32,600 and over 7.0% minus $873.44
So, in roughly one minute’s time, Martin could have performed due diligence and avoided looking foolish.
Oh, but there’s more. Looking at the new tables, if one were still inclined to believe Martin, one might say “but those new numbers are nowhere near the 533% increase that Martin said should be applied!” You would be right. Thing is, Martin’s 533% number is meaningless for at least two reasons. First, if he is calculating the basic inflation rate between 1971 and March of 2009, his approach of dividing the latter by the former (212.714 / 39.9 = 5.33118) is incorrect. The formula for inflation rate, readily available in even the most basic of economic textbooks, is the basic mathematical formula for percent change:
In Martin’s example, that would be:
- (212.714 – 39.9)= 172.814
- 172.814 / 39.9 = 4.33118
- 4.33118 x 100 = 433.118
However, even the 433.118% is meaningless in this argument, as, under the controlling statute, we do not calculate from 1971 to index for inflation. The statute, passed in 1997 and referenced by (though apparently not read by) Martin clearly explains that the formula for annual tax cutoff adjustments is done based on August 31 CPI for the taxable year compared to August 31, 1997 (which was 160.8). The math works exactly the same as above, so we get:
- 219.086 – 160.8 = 58.286
- 58.286 / 160.8 = .3625
- .3625 x 100 = 36.25
If we increase the original statutory tables by 36.25% across the board, we get rounded-off bounds of:
At least Not More Than $0 $4,099 $4,100 $8,199 $8,200 $12,199 $12,200 $20,399 $24,000 $33,999 $34,000 up
While not perfect, these numbers are pretty darn close to the actual tax cutoffs for 2008. The tax rates for all of the levels other than the lowest one also include a standard deductions in graduated amounts, bringing the tax paid even closer to where it should be under the law. The adjusted rates for 2009 (listed above) are even closer to what you would expect based on CPI.
You might have noticed that I emphasized the word “shall” as it appeared throughout subsection (d) above. I did this in response to Martin’s statement that the 1997 amendment that created subsection (d) “allows the Arkansas Department of Finance & Adminstration (DFA) to make adjustments in response to CPI.” Martin has absolutely no excuse for not knowing that this statement is incorrect. The word shall in a statute does not “allow” someone the discretion whether to do someone; it is mandatory, not permissive, and it proscribes or prescribes a course of conduct. See generally Gonzales v. City of DeWitt, 357 Ark. 10, 159 S.W.3d 298 (2004). If DFA did not make the adjustments, as Martin claims, then they would be in violation of the law, and I am pretty sure someone would have called them on it before now. More importantly, if Martin read subsection (d) before writing his post and did not recognize the importance of “shall,” his lack of understanding of statutory construction is highly alarming given his position as a legislator. (If, as is more likely, he simply didn’t read the statute, then his propensity to fly off the handle when he lacks a frame of reference is similarly troubling.)
I should note that it’s not just Martin’s ability to read a statute or do basic math that are problems with his argument, either. To the somewhat predictable extent that he would now try to fall back on an argument about how the numbers should be adjusted higher to account for the 1971 to 1997 period, a couple problems are still present. First, the inflation rate from 1971 to 1997 was roughly 303%, meaning that his 533% rant remains incorrect, though by an even larger margin. Secondly, and perhaps more importantly, nearly 74% of Arkansans earn 400% of the federal poverty level ($10,500) or less, meaning that nearly 3/4 of the state would be in the 3.5% tax bracket under Martin’s new cutoffs. (Looking at it from a different angle, Martin’s cutoffs would put the state’s median income — $40,507 — well into the lower half of the tax structure.) It goes without saying that taking that much revenue from the state would be disastrous in most any economic climate, but especially when the state is already facing budget shortfalls.
Additionally, it’s not clear that there is any need to revise the tax brackets further in an effort to reach 1971 levels. While I cannot find the Arkansas median income for 1971, the national median that year was $10,290. If we work backward from the 2008 numbers, we can use the fact that Arkansas’s median income is currently 75 – 78% of the national media to extrapolate a 1971 Arkansas median of somewhere between $7,700 and $8,200 (we’ll split the difference and call it $7,950).
When the tax cutoffs were drawn in 1971, the AR median would have fallen into the 3.5% bracket, and would have resulted in a tax of about $278.25. The current median (either $38,820 or $40,507, depending on your source) falls in the 7% bracket, BUT, when the graduated deduction is factored in, results in a tax of $1,868 or $1,987, respectively. These taxes are 4.8 or 4.9% of the income. Meaning that Martin’s whining about how many people were in the 7% bracket is a little disingenuous. Is it a slightly higher percentage than the median paid in 1971? Yes, but not much higher.
However, if we start talking about the amount of tax credits and deductions available today that were not available in 1971, even that slight increase rapidly fades away. The $821 average state income tax paid by Arkansans (i.e. 2.1% to 2.03% of the medians listed above) certainly supports this idea and makes statements like this:
Can you believe that $28,500 puts you in the RICH tax bracket? That is beyond wrong, it borders on evil.
not only incorrect, but also asinine.
That Mark Martin can be so out of touch with the realities of the tax code is worrisome on its own accord. However, when you consider that many provisions of the code were amended as recently as 2009 (House Bill 1480), and that Martin voted in favor of that bill, his unfamiliarity with the basic nuts and bolts of the tax laws is downright frightening; what other bills has he voted for or against without first possessing a baseline understanding of the subject matter?
More importantly, do we want to put someone in a constitutional office responsible for, among other things, overseeing our elections when he has already demonstrated that he cares more about making a statement, regardless of its veracity, than about putting in the effort to do things right?