Under our constitutional system, the federal government is given limited, specific powers, and the states are granted broader, more generalized authority to govern. To illustrate this point, Supreme Court Justice Louis Brandeis, in his 1932 dissent in New State Ice Co v. Liebmann, coined the popular concept that states are “laboratories of democracy.”
Specifically, Brandeis wrote, “A state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”
But with political attention frequently on Washington, D.C., states deserve credit for functioning exactly as intended — and states like Arkansas and South Dakota are no exception.
These are small states doing big things, leading the way on bold reforms to improve their citizens’ lives.
Arkansas: Reforming the Tax Code, Competing for Jobs
Following his victory in the 2014 election, Republican Arkansas Gov. Asa Hutchinson “fulfilled his top campaign promise by signing the Middle Class Income Tax Cut,” providing more than $100 million total in tax relief to households earning between $21,000 and $75,000 and reducing rates a full percentage point.
Sponsored by state Sen. Jonathan Dismang (R) and then-Rep. Jeremy Gillam (R), and passed overwhelmingly by the state legislature, the bill also included “an increase in the standard individual and married deductions” and raised “the capital gains tax exemption…from 30 percent to 50 percent of gains, with a full exemption for gains in excess of $10 million.”
Subsequent legislation supported and signed into law by Hutchinson reduced and, in some cases, eliminated the income tax for Arkansans making less than $21,000 a year, exempted military retirement benefits from taxation, and further simplified the state’s tax brackets. The long-term plan to reform the Arkansas tax code is well underway — with more progress expected in the upcoming legislative session in January of 2021.
Looking further beyond this point, Lt. Governor Tim Griffin (R) recently announced that he is “ready to chart a course that leads Arkansas to a brighter future — one with zero income tax.”
Eliminating the state’s income tax “will incentivize work and productivity, attract high-quality, good-paying jobs, and unleash Arkansas small businesses,” said Griffin. This can be accomplished responsibly through a phase-out that “could take 10 years or possibly even longer,” but it is necessary to make Arkansas more economically competitive with surrounding states.
A fascinating example to underscore the importance of Griffin’s proposal is the city of Texarkana, Arkansas, which is completely exempt from Arkansas’s individual income tax. Just over the border is Texarkana, Texas, and the Lone Star State does not have an income tax. The logic follows that since an exemption is justified for one Arkansas city to compete for business, jobs, and growth, then there is reason to examine the benefits of eliminating the Arkansas income tax entirely.
With Texas to the west and Tennessee to the east — which also does not impose an income tax on wages — Arkansas is directly competing with the tax climate of its neighbors. But Arkansas is showing the nation that through a concerted effort at all levels of state government, bold, conservative policies do work when put into practice.
After all, even during the challenges posed by the COVID-19 pandemic, Arkansas’s unemployment rate is currently lower than the national average, which is a testament to the state’s pro-growth policies. While recovery is ongoing, it is only a matter of time before Arkansas dips back down to the history-making June 2019 unemployment rate of 3.5%, a marker that followed “a record 11th year” of economic expansion, the Arkansas Democrat-Gazette reported.
South Dakota: Reducing the Size and Scope of Government
Republican Gov. Kristi Noem has only served as her state’s chief executive since 2019, but she has already proven that a common-sense agenda to reduce the size and scope of government is the best way to support and enhance the lives of everyday people. Noem’s approach is one that comes naturally as “a lifelong rancher, farmer, and small business owner,” experiences she brought with her to the state legislature and the U.S. Congress before being elected the “first-ever female governor” of South Dakota.
Since taking office, Noem has championed her state’s agriculture industry — South Dakota’s No. 1 industry. Earlier this year, the legislature passed SB 157 to enact “consistency in the state’s widely variable county special and conditional permitting processes,” reported the Council of State Governments. Before this law, “county zoning rules in South Dakota varied from none to very restrictive,” making the process convoluted and particularly prohibitive for farms and energy production.
While SB 157 was a welcome move for the state’s core industries, the left-leaning Dakota Free Press decried the bill as an effort “to make our state one solid wall of CAFO stink.” CAFO stands for Concentrated Animal Feeding Operations — livestock farms where the animals are kept and fed for human consumption. South Dakota did not become an environmental disaster, of course, and family businesses across the state benefited from a more predictable permitting process.
The state’s regulatory burden has also been reduced through occupational licensing reform. Back in July, a slate of new laws went into effect streamlining license requirements in several areas, including cosmetology, insurance plan administrators, technical professions, and barbering.
For certain professionals, such as chiropractors and optometrists, the law requiring “high school graduation or equivalent” was repealed. This effort prioritized “putting people over paperwork to grow business and strengthen communities in our state,” said Noem.
Between these initiatives and others — such as signing a law allowing permitless concealed carry of handguns, otherwise known as “constitutional carry” — Noem and the legislature have shown a strong commitment to expanding freedom and protecting individual rights.