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A taxing debate: 'populist' governor's record doesn't match his campaign rhetoric.

While campaigning in New Hampshire prior to the nation's first presidential primary last month, Gov. Bill Clinton took a roundhouse right at corporate America.

The issue was excessive executive pay.

"How can we run a country with a president who's codling people he ought to be kicking in the family?" Clinton asked.

There were cheers from working-class New England voters.

On the national campaign trail, candidate Clinton supports middle-class tax cuts and proposes expanding the earned-income tax credit for the working poor. He takes shots at corporate greed.

Closer to home, Gov. Clinton consistently has supported corporate tax credits and incentives, while individual taxes have increased.

How can Clinton get away with bashing big business on the presidential campaign trail while carrying its water in Arkansas?

"Damned if I know," says one local political activist.

Clinton promises to put corporate executives back in their place and revitalize the middle class.

"It's good rhetoric, and I like to hear it," says Brownie Ledbetter of the Arkansas Fairness Council. "But I can't imagine he'll do anything different than he has done the past 10 years. People need to look at what has been done here."

Critics charge that under Clinton, Arkansas' tax structure has become increasingly regressive.

The state sales tax has risen from 3 percent to 4.5 percent. County and city sales taxes range from 1 percent to 3 percent.

Consumers have seen total state and local sales taxes more than double under Clinton.

Groceries are exempt from the sales tax in many states. Not in Arkansas.

Meanwhile, corporations have been favored with credits designed to stimulate industrial growth.

Has lax enforcement and abuse of these incentives had an adverse affect on the state?

Opponents of the tax breaks say there is little evidence that industrial growth has been stimulated.

But officials at the Arkansas Industrial Development Commission provide statistics that point to industrial expansions and job growth.

The reason for growth?

The tax breaks are a big part of it, the industrial recruiters will tell you.

Business Bill

That brings up another question: Has Bill Clinton been good to business in Arkansas?

Friend and foe alike classify Clinton as a pro-business governor -- despite his populist rhetoric.

Some say his pro-business stance has come at the expense of the middle class. Arkansas' tax system rewards big business and places the burden on the "little man," they claim.

"He's vulnerable on his tax record," says J. Bill Becker, president of the state AFL-CIO. "Most |taxes~ have fallen on the backs of the middle class. He is giving the tax breaks to industry."

Clinton supporters counter that the incentives have kept jobs in the state. And, they say, the incentives have kept alive small businesses that depend on the larger corporations.

Ron Russell, president of the Arkansas State Chamber of Commerce and Associated Industries of Arkansas Inc., begins quoting statistics when asked if Clinton has been good for business in Arkansas.

Russell says that during the past decade, Arkansas has been the site of 573 plant locations and 2,172 plant expansions providing 112,593 new jobs.

"The governor can take some credit for that," Russell says.

He gives an example.

"He picked up the phone and called the CEO," Russell says of one recruiting effort. "He took a real hands-on approach. One of Clinton's greatest attributes is his ability to communicate one-on-one."

Especially with influential people.

Clinton receives campaign contributions from most of the state's corporate executives.

One prominent banker says Clinton has "a way with CEO types," a talent that has helped him politically.

But has it helped the state economically?

"The governor, overall, has been very good for business in the state," Russell says.

Russell points to Clinton's creation of the Arkansas Development Finance Authority, his close alliance with the AIDC and his creation of the Arkansas Science & Technology Authority.

ADFA was created in 1985 to issue bonds and various other debt instruments for the purpose of financing business enterprises, education facilities, health care facilities and housing developments.

AIDC, created in 1955, assists Arkansas communities in developing and implementing economic growth strategies.

ASTA supports scientific and technological growth through research grants, funding for business incubators, loans and other assistance to technology-based enterprises.


Some almost cringe at the term.

Dave Harrington, executive director of the AIDC since 1983, understands.

"If you're talking to ... people who think that business is bad, then that would be a negative term," he says.

A 'Mother' Of A Tax Break

The Clinton administration has backed a number of tax breaks to spur industrial expansions and lure new businesses.

Most often cited is Act 529, the investment tax incentive nicknamed by opponents as the "mother of all tax breaks."

In short, the 1985 manufacturer's investment tax credit gives companies that have been in the state at least two years a 7 percent tax credit on capital investments of more than $5 million. Large manufacturers can recover up to 7 percent of their capital investment in new facilities by paying only half the sales taxes they owe the state for the next seven years.

The credit is allowed on manufacturing machinery that already is exempt from sales and use taxes. Critics say Clinton is giving away the store.

One of those critics is Ledbetter.

From her office on the 11th floor of downtown Little Rock's Boyle Building, Ledbetter fields telephone calls from reporters across the country who want her view on Clinton's record.

She is ready to give it to them.

Ledbetter produces a copy of the "Directory of Incentives for Business Investment and Development in the United States."

In the state-by-state guide, one will not find anything resembling Act 529, she says. The catch, Ledbetter says, is that the act does not require jobs creation.

"It's a legal double dip," she says. "There's no question it is a direct subsidy."

International Paper officials prompted Act 529. IP executives said expansions would be more feasible in Maine if Arkansas did not provide a new incentive.

"I sat down with the governor and talked about the economic vacuum it would create," Harrington says of IP's situation. "He said that's too many jobs to lose. So we sat down and created the bill."

Critics say IP officials were crying wolf. They claim the company already had decided to make major expenditures at its Pine Bluff mill before the tax break was granted.

"It worked," says a former industry official. "Naive Bill Clinton fell for it."

Harrington disagrees.

"There had to be something to give us an edge," he says.

According to Harrington's figures, closing IP plants at Pine Bluff and Camden would force the closure of more than 100 other Arkansas companies that provide supplies.

"It would devastate the state," he says.

With Act 529 as an incentive, IP has created several hundred additional jobs, Harrington says.

That would have occurred without the tax break, the critics say. They claim that through 1990, the investment tax credit has cost Arkansas more than $110 million with the tab increasing each year. Some small business advocates point out that the $5 million minimum investment excludes small industries.

AIDC officials say companies have made $4.8 billion in capital investments since the enactment of Act 529, have "stabilized" more than 80,000 jobs and have created more than 15,000 jobs.

Too Nice To Big Business?

Little Rock businessman Ben Allen, a former state senator, refuses these days to comment on Clinton's tax record.

But he has been highly critical of corporate tax incentives in the past.

"It's not an anti-business attitude to shed light on the fact that there is an excessive use of tax credits brought about by the influence of special interest groups," Allen told Arkansas Business last March.

When contacted recently, Allen said, "I'm a strong supporter of |Clinton's~. I do not want to comment on him or his policies."

Others, like the outspoken W. Howard Goggans of Sherwood, will.

Goggans was a plant controller for Georgia-Pacific Corp. in Crossett until he retired in 1988. Georgia-Pacific was, and continues to be, a major beneficiary of the investment tax credit.

One of the things that crossed Goggans' desk when he worked at Crossett was the application for Act 529 credits.

"It's just a perfunctory rubber stamp," Goggans says. "They never even called to ask what the project was about. It's a one-page application, an hour's job.

"I may sound like a disgruntled former employee. Not so. I believed then that these tax credits are too loosely enforced. The law is so all-encompassing that companies can get the credit on just about any kind of capital expenditure they care to throw together."

Does Clinton bend to pressure from special interest groups?

"Shifting the tax burden from large, interstate corporations to individuals at the low end of the totem pole is not what tax incentives are supposed to do," Goggans said in legislative testimony last year.

"The pattern is an industry comes to the governor and says, 'We're going to leave,'" Ledbetter says. "Arkansas has a lot of one-company towns... If you have a one-industry town and a lobbyist goes to the governor and says he is leaving, the governor is going to have a knee-jerk reaction.

"But Bill has more political clout than any governor we've had. I have not seen him use two or three points of his political capital to break this policy. I've watched five governors. He's the only one who won't use his clout."

Bob Nash was Clinton's senior executive assistant for economic development before being named ADFA president. Nash has worked on passage of various tax credits and defends their use.

Have they kept industry from leaving the state?

"Absolutely," he says.

Nash says of Clinton, "Obviously, he has been good to big business ... A handout is something you give and don't get anything back for. We get economic impact back from this."

The Latest Round

Last week, the Legislature approved more tax breaks. This time, they were aimed at attracting aerospace industries.

The package provides tax incentives, loan assistance and other benefits if an aerospace company will produce at least 50 jobs during a five-year period.

"It's this insidious syndrome of middle management -- lawyers, lobbyists -- justifying its existence," Goggans says.

One of the few legislators to question the package was Sen. Vic Snyder of Little Rock.

"Sooner or later, there will be a tax revolt in this state," he said at the time of passage.

The Fairness Council released a statement applauding the requirement that a company produce jobs. The council restated its call for Act 529 to be amended in similar fashion.

AIDC officials hope the aerospace tax package, coming on the heels of Rohr Inc.'s announcement of a $25 million jet engine components plant near Arkadelphia, will spur additional growth.

"There are more corporate jets finished out and sold from |Arkansas~ than anyplace in the world," Harrington says. "That's a leadership position.

"And I will venture to say that in a year or so, there will be other operations here."

Tax Burden

Arkansans shoulder the 33rd-highest tax burden in the country, according to a recent survey by Money that included property taxes for the first time.

Arkansas' ranking should be considered in light of the fact that the state's per-capita income level is among the five lowest in the country. The Department of Commerce's Bureau of Economic Analysis ranks Arkansas' per-capita income of $14,188 at No. 47.

Money bases its findings on a typical family of four with two wage earners and a total average income of $73,000. The Arkansas Fairness Council estimates a more typical middle-class family income for Arkansas to be $50,000.

Such a figure would give Arkansas a tax burden ranked 30th among the states.

"There are 20 states with lower tax burdens," Ledbetter says. "But only four have a lower per-capita income."

Look how far Arkansas has come, Harrington responds.

Nine years ago, the average hourly wage in the state was about $6. Today, it is $8.99 per hour, he says.

From 1985-89, employment in Arkansas increased 9.6 percent, according to the state Employment Security Division. The growth was more than any neighboring state and a fraction above the national average.

In the 1980s, the number of Arkansans working in manufacturing jobs increased 11.2 percent, according to the U.S. Department of Labor's Bureau of Labor Statistics. Again, that figure led neighboring states and was far above the national average, which showed a 5.8 percent decrease in manufacturing employment.

"Is any or all of this working?" Harrington says. "Arkansas has led every state around it for the past eight years in growth ... The governor is committed to the development and creation of better-paying jobs. He believes big business is a good market for small business.

"You know who is the greatest consumer of products of small business? Big business."

Meanwhile, out on the campaign trail, candidate Clinton keeps bashing the concept of corporate greed.

And in Arkansas, Gov. Clinton keeps the corporate lobbyists smiling.
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Title Annotation:Gov. Bill Clinton
Author:Webb, Kane
Publication:Arkansas Business
Date:Mar 2, 1992
Previous Article:Arkla Inc.
Next Article:New businesses: a listing of new businesses in Central Arkansas.

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