Oct. 5: Joint Revenue and Tax transcript

Joint Revenue and Tax

October 5, 2021

 

Sample [00:00:01] Members, let’s start taking your seats. We got to be in the chamber at 11:00, and so we need to have all the time that we can to discuss this. I’m going to call this Joint Senate– Joint Revenue and Tax Committee to order. Like I say, we’ve got a good little bit of stuff that we need to hear and we’ve got to be back in the chamber at 11:00. And so with that, Mr. Chairman, do you have anything? So I’m going to turn it right over to—

 

Jett [00:01:06] I never miss the opportunity to say something. I appreciate the folks from Moody coming in and appreciate the work you guys have done and look forward to hearing what you have to say. 

 

Sample [00:01:17] And I’m going to turn it over to, to Moody’s right now, Mr. Dan White and Emily Mandel. And you’re up. 

 

White [00:01:27] Sounds good. Thank you, Mr. Chairman. We’re going to walk through a couple of things today. We were asked by the Bureau of Legislative Research to look at two questions. The first being examining the, the impact of the pandemic and the federal stimulus response on the state of Arkansas’ economy and its tax revenues. And then the second question was to look at specific proposed changes to the individual income tax structure in Arkansas, what the economic and revenue impacts for that. So we’re going to go through both of those questions individually and then I’d be more than happy to, and Emily would be more than happy to, answer any questions that you all might have about the analysis, anything that went into the analysis and kind of what the results mean. Does that sound good, Mr. Chairman? 

 

Sample [00:02:11] It sounds good. 

 

White [00:02:12] Excellent. 

 

Sample [00:02:12] Proceed. 

 

White [00:02:14] So just for the record, my name is Dan White. I’m the director of Fiscal Policy Research and public sector research at Moody’s Analytics. Emily Mandel is an economist. She’s one of our state and local government fiscal policy experts. Before I get started, the Moody’s lawyers would be remiss if I did not give a couple of disclaimers here at the outset. So the first thing is Emily and I work for Moody’s Analytics, which is an entirely separate company from Moody’s Investors Service, the ratings agency that you all might be more familiar with. We’re both owned by the same parent corporation, but we are separate companies. So please don’t let anything that I say be misconstrued as having any bearing whatsoever on past, current, or future ratings actions. If that sounds like it was written by a lawyer, it’s because it was. But it keeps me out of trouble, so I have to say it here at the outset. Secondly, Mr. Chairman, we performed this analysis in as nonpartisan a way, as we possibly could, in accordance with the Bureau of Legislative Research’s wishes. So we are not here to advocate for or against any of the policy proposals that we are discussing today. With that, I would also be remiss if I did not thank the wonderful staff of the Bureau of Legislative Research for all of the assistance that they gave us in putting all of this together and in collecting all of the data that was necessary to do the analysis. I have the privilege of working with states, about 40 different states in some form or another, and I do have to compliment you on your staff. You have a wonderful BLR staff and you guys should be very proud of them. OK? With all the preliminaries out of the way, I’m going to hand it over to Emily to discuss the answer to that first question. There’s a nice slide showing the separation between Moody’s that I should have showed earlier. But I’ll hand it over to Emily to discuss the first question that we had to analyze. 

 

Mandel [00:03:58] Thanks, Dan. So I’m going to talk about the first of the two reports that you have in front of you, and that’s the impact of federal stimulus during and after the pandemic. So this– as this report, we’ve gone in to try to look at a couple of different things. We have taken a look back at what happened during the pandemic, what would have happened if we didn’t have a pandemic, and then finally, how things would have played out if we hadn’t had the huge amount of federal stimulus that was injected into the national and the Arkansas economy. After that, I’m going to go through and look at our– thanks, Dan– and look at our outlook, just looking 10 years ahead and kind of our forecast for a couple of different series of tax revenues to get you a sense of what we think is coming for Arkansas’ economy and how things are going to play out, both now and relative to if this pandemic had not occurred. So looking back, we have three different series here. These show actual collections, and our two different scenarios, our two different ‘what if’ analysis here. First of all, point your attention to the blue line. And this just shows actual collections for sales and use and individual income tax collections over the past six quarters. So beginning at the start of the pandemic, from the beginning of calendar 2020 on through the first half of 2021. And so altogether, Arkansas brought in $9.1 billion dollars in these two revenue series over these six quarters. So that’s what we know happened. This is how things played out given the pandemic, given federal stimulus, all included. So now what we’ve done is we have constructed two alternatives here. First, I want to focus your attention to our green line here, our no pandemic scenario. Through constructing this altogether, we see that collections for these two revenue types would have been $108 million higher than they actually turned out in actuality. So that’s what our estimates show that the pandemic cost your economy in terms of these revenue streams. Now I want to point your attention to a couple of different factors that are impacting the timing of the series overall. First off, as all of you know, the filing deadline was shifted, so you’re seeing some difference in the timing of when the revenue would have come in without the pandemic. Then secondly, you can see that over time, our actual collections exceed our estimated no pandemic collections later on in this time period. And that we attribute to the massive amount of federal stimulus that started flowing through this economy, starting partway through the pandemic through the end. And we, we believe that this significantly increased Arkansas’ tax revenue collections relative to even where you would have been without this recession, without this pandemic. And now we can really focus in on the impact that we see from the federal stimulus by looking at the third line here, this orange line. And this is clearly more severe than what we saw today throughout this, throughout the time period. And altogether, we estimate that without this, without the federal stimulus, we would have been $1.1 billion lower in revenue relative to where we are today. So quite a substantial difference there. OK, finally, we’ve prepared a forecast for how these, how we expect these revenues to play out over the next 10 years. This chart here shows the difference between what we would have expected from our alternative scenario without the pandemic versus what we actually expect things to turn out, given everything that we know today, where we are today, and some of the changes that have impacted Arkansas’ economy as a result of the pandemic, as a result of federal stimulus and how we see those are going to have long lasting impacts on the outlook relative to where we would have been otherwise. So you’ll see that our baseline forecast, our actual expectations are higher basically throughout this forecast period relative to where we expect we would have been without the pandemic. Now there’s two main reasons that I’d attribute to that. First off, of course, the federal stimulus where we’ve injected huge amounts of money into Arkansas’ economy, and that’s going to play through just in generating additional economic activity. And that, in turn, will bring in additional revenues. The other factor here is going to be prices. Of course, you’ve seen that we’ve had an increase in inflation over the past few quarters, and that’s playing through in increasing just the cost of goods, which increases our sales tax revenues on a nominal basis. And we’ve also seen some pressure on wages, which is going to flow through in increasing both spending as well as some of our individual income tax collections. So between those two factors, the increased federal stimulus, increasing economic activity, as well as the increased higher prices that we see as a result of the pandemic and some of the disruption to global supply chains, we get a higher outlook altogether, OK, accounting to $2.2 billion in revenue over 10 years. 

 

White [00:09:50] Thanks, Emily. So that $2.2 billion, just to recap, that’s the baseline forecast versus what would have happened had the Arkansas economy continued to grow at pre-pandemic growth rates. So if we just continued growing in 2016 to 2018, that kind of growth rate out into the future, compare those two, you’d have about $2.2 billion less than had we had no pandemic altogether, if that makes sense. OK? So we’re going to move on briefly to just a summary of the next part of the analysis. And there should be a second document that went along with that, a written report that goes into the methodologies and the details of both of these in quite a bit more detail. But in terms of the slide deck, it’ll be section 2 of your slides. And these are the macroeconomic and revenue effects of some proposed changes in the individual income tax that we were asked to look at. The first thing I want to do is I want to just summarize some of the changes that we looked at. There are really two pieces that go into these individual income tax changes. The first is a consolidation of the low and mid tables. As I’m sure you’re very well aware, there are three income tax tables here in Arkansas– a low, a mid income, and a high income. The first thing that they would do is they would take the low income and the mid income, and this proposal would consolidate those two and put them into one table. So instead of having three tables, you’d have two tables. The second thing that would do, this would do, is it would lower the top rate for high earners and for folks at the high end of the middle income table from 5.9 percent marginal rate to 5.5 percent marginal rate. And we can see what that looks like in practice here. We also– there are some changes that were proposed in terms of the, the brackets, where everybody kind of falls within those brackets. They’re a little clearer in terms of $5,000 increments starting out and then they kind of go right to the next $100– $1,000 threshold above that. Some changes across these– two things that this change does from a tax policy perspective that I want to make sure we’re clear about. The first is that this simplifies the tax code in Arkansas. So instead of having three different tax tables, you have two tax tables to worry about, which should create some efficiencies, both in terms of complying with the tax code, but also in terms of enforcing the tax code for the DFA. The second thing that this does, and we’ll talk about this in a bit more detail in a slide or two, is it has some distributional impacts across the income spectrum. OK, so this is going to hit people in the low and mid incomes differently than it’s going to hit folks in the high incomes in terms of the changes that are made relative to current law. OK, so that’s– this is the low mid-table you can see the top rate comes down from 5.9 percent to 5.5 percent. Under the high table, the brackets would stay exactly the same, but the proposed, again, top rate would fall from 5.9 percent to 5.5 percent. OK, now obviously, that is going to come with some significant revenue and economic implications. So when we go through and we calculate the revenue that would be collected under this regime to current law, we have a total cost on an annualized basis of about $250 billion beginning in FY 23. Because FY 22, obviously, is already under way, you’d only see about half of that impact in the current fiscal year. If you were to grow each of those out by the cost of inflation from that point over the next 10 years, you’d see a tax cut of about $2.6 billion over a 10 year period. All right. About half of that would be– or slightly more than half of that would be concentrated in low and middle incomes, and then slightly less than half of that would obviously come from folks in the high income table. Now that’s not necessarily a full picture of the distributional effects of this, because obviously folks who are in that 82,000 plus category do pay a much larger share of overall tax revenue. So I’ll show you in just a slide here, the distributional impacts as a share of overall income, so you can see kind of who’s winning the most out of this. Obviously, if you have a $2.6 billion tax cut over 10 years, that’s going to have significant economic consequences. Based on our modeling techniques, we assume that the increase in gross state products or the size of the overall Arkansas economy will expand by almost $1 billion dollars compared to what the current law baseline would project. OK. Now there’s a very important caveat that I should add to that. The, the projections here assume that this revenue cut is financed solely out of excess revenues and potentially reserves. It does not assume that there are any major spending cuts that accompany this kind of a revenue cut. If for whatever reason, there’s not sufficient excess revenue, either in terms of the additional revenue that Emily talked about or additional revenue that’s available in the reserve funds, then obviously given balanced budget requirements, the state would have to make some spending cuts to accompany this. If, for whatever reason, the state finds itself in that situation, then these impacts to GDP could be smaller than what we’ve listed here. OK. Just full disclosure. From a distributional standpoint, you can see that this is, I think, could be very well classified as a middle class tax cut. Most of the, the, the largest benefits really accrue to those in the $20,000 to $80,000 range from an income standpoint, tapering off as you get out above $100,000. This is very good from an economic standpoint. So when we look at these from an economic standpoint, when we’re looking at the GDP impacts especially, one of the things that we’re looking at is how quickly this money, once it’s kept in somebody’s pocket, how quickly it’ll make its way back through the rest of the economy. And what we know from previous economic experiences that the folks in the $20,000 to $80,000 range have what we would call a higher MPC or a marginal propensity to consume. That means if you give them an extra dollar, they’re going to spend it and probably spend it much more quickly than folks who are at the very high end of the income distribution. So not only will those dollars be spent more quickly, but they’re also probably be spent more here in Arkansas. To the extent that those dollars are saved or invested, you’re going to see more leakage there, that those dollars would actually be spent outside of Arkansas. So because this concentrates so much of the impacts in that middle tier, you actually see pretty significant economic consequences as a result of this tax cut. One other thing that I will point out, and that is the changes down to the the under $10,000 and $10,000 to $20,000 range, which we know people are asking about. Obviously, given the changes, those are not nearly as large a tax cut as elsewhere in the income distribution, but there are a couple of good qualifiers there. The first being that with the new minimum wage law in Arkansas, anyone who’s working over 40 hours in Arkansas should see at least $22,000 a year in taxable income. So anybody working over 40 hours a week– or sorry a month– yes, sorry a week is going to fall into that– if you’re only working 40 hours a month, you’re not working full time, right–  20 to 80k would be that range. So if anybody who’s working 40 hours a week, they would make at least that much money. Secondly, anybody who’s making less than that money is probably either they’re not working full time and also probably earning– or not earning– but they’re receiving significant assistance from state or federal aid in the form of TANF or Medicaid and other sources like that. So their taxable incomes may not be the best way to judge the overall well-being of folks in those income categories. That said, the distributional impacts are fairly evenly spread out across the the income buckets here, and that owes to a lot of the significant economic impacts that we see previously in this analysis. OK, so that’s kind of a 30,000 foot view. We’ll be happy to get into any of the details on the methodology or or the details of this. And Mr. Chairman, I’d be happy to answer any questions. 

 

Sample [00:17:54] Representative Jett, did you have a question? 

 

Jett [00:17:57] Thank you, Mr. Chair. Dan, can you go back on Page 4 and touch back on the the $1.9 billion of that federal stimulus? Can you, can you speak to that one more time, please? 

 

White [00:18:10] Sure. Mr. Chairman and correct me if I’m wrong. So the 1.9 billion, that is what the world would have looked like if we had the pandemic, but we didn’t receive any federal stimulus funding. So the federal stimulus funding saved the state roughly $1 billion in tax revenue by having that. 

 

Jett [00:18:28] Thank you. I just want that clarified. Thank you. 

 

Sample [00:18:31] Senator Johnson, you have a question? 

 

M Johnson [00:18:36] Thank you, Mr. Chairman. Mr. White and also Miss Mandel, just, you barely touched on the word inflation. And we’re– we’ve gotten kind of used to low inflation, single digit inflation. Some of us are old enough to remember double digit inflation. And we see some of the signs in the economy, especially on fiscal policy coming out of Washington, that I hate to say it– Rep. Wooten’s nodding. As Yogi said, deja vu all over again. What kind of figure are you calculating into your analysis on at least a presumption of a range or a rate of inflation? 

 

White [00:19:24] Mr. Chairman, Senator, you’re absolutely right. Inflation is a major concern, but there’s two different impacts of inflation in this kind of analysis. When we look at the forecast, we have very strong– and I’ll go forward to this for a second. We have very strong inflation expectations, especially over the next four to six quarters built into the baseline forecast. I think on a quarterly basis, so there are months that could get higher than this, but on a quarterly basis, I think it picks out about 8 or 9 percent rate of inflation, which is roughly what we’re seeing today. 

 

M Johnson [00:19:56] Annualized. 

 

White [00:19:57] Annualized, yes. 

 

M Johnson [00:19:58] Okay. 

 

White [00:20:00] It’s impossible to take $5 trillion and push it through the economy without resulting in some inflation. There has to be inflation. That’s part of the story around inflation. But another big part of the story around inflation is there are some pandemic related supply chain issues that are just exacerbating those problems even more. The forecast assumes that within the next four to six quarters, those near term supply chain issues are roughly worked out. They’re not banished completely, but they are to a point where we’re finding ways to work around them and they’re not contributing to the pace of inflation, necessarily, to the degree that they are today. That said, we still have significant inflation expectations as a result of all of that federal money coming and hitting the economy. Beyond, and I would– I’m trying to remember the calendar to fiscal year calculations in my head– beyond about fiscal year 2023, those inflation expectations come back down to a more stable baseline in that 2.5 percent range, a little bit higher than the Federal Reserve’s target, but significant. That obviously has major economic effects not only for Arkansas but for the rest of the United States. From a tax revenue perspective, and this is, I think, what Emily was hitting on, is that actually can be a positive for tax revenues in that tax revenues are based on a percentage of the cost of goods sold. And so as the cost of goods sold increases in terms of prices, you’ll actually see a slight artificial increase in sales tax revenues as a result of that. Once we get out to 2023, 2024, some of those price pressures will abate. And so we won’t see as strong an increase in sales tax revenues as a result of just inflation alone, if that makes sense. 

 

M Johnson [00:21:40] Thank you for your answer. It was very good. Thank you, Mr. Chairman. 

 

Sample [00:21:44] Representative Wooten, do you have a question? 

 

Wooten [00:21:48] Yes. Looking at your proposal or your research, it indicates that 2.6 billion would be lost or reduced over the 10 year period. Then it says the economy would realize 947 million. When I look at it and I break it down, there would roughly be 260 million a year lost in revenue and 95 million a year given to the economy. I got two questions. Did you in your tables include the taxes that would be paid on the 947 million. And the second question is where, where did or where do you think that other 165 million dollar difference went? 

 

White [00:22:53] Mr. Chairman, Representative, thanks for asking that question. I should have made this very clear. So when we did this analysis, this is a static revenue analysis. So this does not include the dynamic impacts. The report you have that’s a bit more detailed does have the dynamic impacts laid out specifically. The dynamic impacts around this– so about $2.6 billion over 10 years is the static cost. The dynamic cost is somewhere around 2.5 billion. So it offsets it by just over maybe $100 million there, there, thereabouts. So that’s a dynamic analysis and that is included in the written report that you have in front of you. When we look at tax changes like this, there are complications in terms of what eventually makes its way into being actual economic activity. And it relates somewhat to the MPCs, the marginal propensity to consume that I talked about earlier. So if I give an extra dollar to somebody who’s making between $20,000 and $80,000 a year, we talked about them being more likely to spend that money and spend it here in Arkansas. Right? So if I give them an extra dollar, they’re probably not going to take the entire dollar and spend it, at least not right away in Arkansas. Some of it is going to be saved and some of those savings and actually some of the spending is going to find its way outside of Arkansas. So if they go on Amazon and they buy a new, a new pair of shoes for their son, that dollar may not be going to Arkansas. And it won’t result in Arkansas economic activity or Arkansas tax revenue. So the numbers that we have to use are based on historical data from the Bureau of Economic Analysis. They’re called multiplier number– or tax multipliers, rims multipliers for those of you who are familiar with that kind of input output analysis. We used those estimates to kind of determine how much of those dollars that are being, going back to Arkansas taxpayers in the form of tax cuts actually make their way into the economy. And what we find is– so if we assume there’s $2.6 billion in tax revenue. The other $1.7 billion that’s going away is either money that’s being saved and not spent during that 10 year period or it’s money that’s being spent or saved and going outside the state of Arkansas if that makes sense. 

 

Wooten [00:25:11] Well, maybe I missed it. But did you include the 947 million in the tax base or tax rate? 

 

White [00:25:23] Mr. Chairman– 

 

Wooten [00:25:24] Did you calculate that in, take off the 2.6 billion, but did you include taxes that would be paid on 947 million that goes back into the economy? 

 

White [00:25:37] Mr. Chairman, Representative, do you mean in the economic analysis or in the revenue analysis? 

 

Wooten [00:25:41] The economic. 

 

White [00:25:43] The economic? Yes, that’s those feedback effects are incorporated into that model. 

 

Wooten [00:25:46] All right. Thank you, Mr. Chairman. 

 

Sample [00:25:53] Senator, Elliott, do you have a question? Do you have a question? 

 

Elliott [00:25:59] Yes. 

 

Sample [00:26:02] You’re up. 

 

Elliott [00:26:06] When you talked about those that are in the lower tier bracket, that probably the best way to determine their well-being might not be by looking at their income. Is the reverse of that true as well, that when we look at those in the higher bracket, that might not be a fair– the best representation of their income because people in those higher brackets oftentimes don’t reflect their most solid well-being in their salaries. 

 

White [00:26:40] Mr. Chairman, Representative, yes and yes. But maybe for different reasons. So I want to make sure I clarify my earlier statement. So when we talked about the distributional impacts, what I wanted to make clear for folks making less than $20,000 a year is that their taxable income may not be the best picture. Their overall income certainly would be because there’s transfer payments that wouldn’t be captured in their taxable income. 

 

Elliott [00:27:03] Well, I was– maybe I wasn’t clear either because I was thinking when you said their overall income. I’m asking about the overall income at the higher level as well, which actually we might not have a way of knowing since so much of that well-being is in capital, capital gains or some other type of investment. So would it be fair to assume that we are at best making a– well, a guess? And I don’t mean that in a pejorative way. But just as we think about those at the lower end, their overall income, should we think about those at the higher end of their overall income and assume the same outcome that we are likely not making decisions based on what their overall income is or it’s not impacted our decisions? 

 

White [00:28:02] Mr. Chairman, Representative, Yes. So to the lower end, absolutely. Their overall personal income would be significantly higher than this because their taxable income is going to be very low. At the high end, taxable income is not a bad way to look at it because it would include their salary. It would also include dividends, interest and rent. It will also include capital gains. It will only distort the picture of their overall income to the degree to which there are exemptions that exist in the tax code for them to lower their overall personal income to taxable income. So depending on the individual, they might be able to, for example, if a capital gain if it’s on paper, it may not show up. It won’t show up in their taxable income because they haven’t sold that asset. So they might be able to borrow against those assets that are now worth more money, but they’re not actually able to realize those capital gains and so those wouldn’t show up in their top incomes. The other thing, and just to point out, is that those folks especially well over 100k, so not, you know, 100 to 200, but 400 plus, those folks’ incomes has a tends to be incredibly volatile from one year to the next because they are taking income and they’re moving it from one tax year to another. Or they maybe are receiving their, their majority of their income from non-salary, non-wage income, which can fluctuate significantly. So anytime you’re doing an analysis like this on folks who are very high wage, you would want to spread that out over a longer period of time, look at their total income over a 5 to 10 year period and then look at the tax incidence there. 

 

Elliott [00:29:30] One more question, if I may, Mr. Chair. I have not– I’ve only really skimmed the written report. So if this is in there, I’ll study it more. When, when you gave us the answer about how the tax brackets, the folks in each touch tax bracket would be impacted, you gave us that by percentage, and then roughly, I think maybe you said roughly half– the impact would be about 50 percent for those in the lower tax bracket and same thing for the higher tax bracket. Did I hear that wrong or–? 

 

White [00:30:08] Mr. Chairman, representative, yes, in this slide here– in terms of just the gross dollar amount, so about 1.4 billion dollars of the 2.6 would come from folks in the low and mid tables as they’re currently defined, and about 1.2, 1.3 billion would come from folks in the high income table as it’s currently defined. 

 

Elliott [00:30:25] And that just leaves me sort of concerned that I think as much as anything, I need to think about this more, but when we are, we are giving a tax break and its impacting folks roughly evenly, and those in the middle and lower, as we know, they’re going to spend every dime they get basically in putting it back into the economy. So could this be a tax break where those in the, in the lower bracket are spending and therefore supporting down the road trying to regain the income that we are going to be losing. And those at the top are more likely to be in a position where they are not going to have to spend every dime they get, so would we in essence possibly be just providing an investment fund or saving fund for those at the top at the expense of those at the bottom if it’s hitting us rather evenly? 

 

White [00:31:32] Mr. Chairman, Representative, I’m not sure I understand that concept because if we look at the the share of the tax breaks, the folks in that 20 to 80, even though– so we talked about the dollar amounts are spread the way they are. But because that’s out of a much larger overall tax liability at the high end, it’s actually a much smaller share in terms of the percentage tax cut. 

 

Elliott [00:31:56] I understand the much smaller share, but conceptually who– Mr. Chair, should I yield? Somebody else have a question? OK, I’ll make this the last question. But who in the end is going to be the– we are providing a tax break for two groups of folks. In the end, the higher end, as usual, is going to be in a position to not have to spend the tax break we provide for them. At the same time, we are agreeing that those at the bottom are likely going to have to spend everything they get, which would be a good thing they might have getting more money. But just conceptually, they are the ones who are going to be putting money back into the economy most likely at a higher percentage than anybody else and therefore bearing more of the burden of trying to recoup the funds that we are going to lose because of the tax break is what I was asking you about.  

 

White [00:33:01] Right. Mr. Chairman, Representative, so this kind of boils down to those MPCs that I talked about earlier, the marginal propensity to consume. In general, the lower someone’s income, the higher their MPC, the higher their marginal propensity to consume. That doesn’t necessarily mean– so if a dollar is not being spent immediately, does not necessarily mean that it’s not flowing into the economy, especially if they’re saving. That is going to be invested somewhere. So if you’re talking about a small business owner, they’re not spending that money, but they might be investing it in new property, plant or equipment for their business, or they might be spending it through the business in order to hire a new person. So it’s difficult to draw as distinct a line as that between consumption and investment. But certainly, folks at the lower end of the income distribution are going to be immediately spending that money much more quickly than folks at the higher end, for sure. 

 

Elliott [00:33:56] Thanks, Mr. Chair. 

 

Sample [00:33:58] Senator Irvin. 

 

Irvin [00:34:02] Thank you, Mr. Chair. I’m interested in the macro economic effects of what you’re reporting here, and I hear you about the spending propensities in the MPC. However, you also say that this proposal would have similar impacts on both total personal income and employment, and that greater demand from rising consumption and investment incentivizes more employees to hire and raise wages. You further state that your analytic estimates that the proposed tax relief would add an additional 792 million dollars to Arkansas personal income over the next decade. Can you elaborate a little bit more because I think we’re focused on just sales and use tax revenue, but here you’re also moving into actual growth in wages and personal income taxes as a result of the consumption and the spending. Is that– am I reading that correctly? Or can you elaborate more on that, please? 

 

White [00:35:01] Mr. Chairman, Representative, absolutely. So that kind of goes to this gross state line we have here. That’s the size of the overall economy. So the, the, the income numbers that we talked about in the report, the 700 million dollars plus, that would be baked into that gross state product number. So as we have more people spending in Arkansas, we have more people investing in Arkansas, we have more jobs and we have higher levels of overall income in Arkansas as a result of that. And that’s one of the reasons that would drive this kind of larger Arkansas economy as a result of these tax cuts. 

 

Irvin [00:35:33] So the, the tax relief and the tax cut would actually overall improve perhaps someone’s personal standing in their economic outlook simply because of the economic activity that there was, that the tax cuts will produce? 

 

White [00:35:51] Mr. Chairman, Representative, yes. 

 

Irvin [00:35:53] Thank you. 

 

Sample [00:35:55] Representative Wooten. 

 

Wooten [00:35:58] I’d like to follow up on my earlier questions. If I look at the percentages, we’re saying that 63 percent of the tax cut will be lost to the Arkansas economy. Is that, is– I have a hard time accepting that. Won’t you see more increased jobs and benefits, as Senator Irvin was pointing out from a tax cut? And follow up on that, if I may, Mr. Chairman, one more. Do you know the dollar amount of money that an individual in the lower bracket, the middle bracket, and the higher bracket, how much an individual household will receive? I understand the low has already gotten it, the middle. Now we’re talking about the high. But did you all look at how much each individual home in those low, middle and higher, how much more money they have at their disposal and would not have had if it had not been for the tax cut, irrelevant of where they stand? They would have– they’re going to, the taxpayers are going to have more money at their disposal. Is that correct? 

 

White [00:37:17] Mr. Chairman, Representative, yes. So to answer your second question first, what this shows behind us that is the percentage tax cut that everyone would receive. So everyone across the income distribution under this proposal would receive more money at the end of it. They would have more money after taxes than they have under current law, regardless of where they are in that income distribution. 

 

Wooten [00:37:38] Follow up. So if I understand also, you said that the trigger points will be on excess revenues and reserves as it relates to the– that’s how we’re going to be able to not have to have dramatic tax cuts in state government or spending cuts. Is that correct? 

 

White [00:38:01] Mr. Chairman, Representative, so this assumes that these are all paid for out of surplus revenues or reserves. So to the extent– so the bottom line is if you if you passed this today, you would have $2.6 billion less in tax revenue over the next 10 years. So, so long as there is sufficient tax revenue to cover, at left over that– what’s gone, what’s missing without having to cut spending dramatically or having to lay people off, then these are roughly the economic impacts that you could expect to see. If for whatever reason, there was not sufficient revenue to cover the cost of that revenue cut, and you ended up having to go back in five years or six years and cut back on state spending materially or lay people off, then those economic benefits would not be as strong as we laid out in this report. 

 

Wooten [00:38:49] But the bottom line is everyone benefits, maybe some more than others, but everyone benefits from the tax cut. 

 

White [00:38:58] Mr. Chairman, Representative, yes, every, every Arkansas taxpayer should see more after tax income as a result of this proposal than they would without it. 

 

Wooten [00:39:07] Thank you. Thank you, Mr. Chairman. 

 

Sample [00:39:09] Senator Chesterfield, you have a question? 

 

Chesterfield [00:39:12] Yes. Thank you, Mr. Chair. And I know that we’ve had major tax cuts in this country, and most of them have relied on the concept of trickle down economics. Is that the basis for this as well, that if the rich get more than they’re going to invest more and therefore everybody else, it lifts all boats and all that stuff?

 

White [00:39:34] Mr. Chairman, Senator, no. If this were quote unquote trickle down economics, then we would expect that the 2.6 trillion– or billion dollars, sorry. I keep– I do a lot of work for the federal government as well and sometimes I have trouble getting my trillions and my billions straight. If this was truly that, then we would expect the, the increase in the gross state product to be enough to generate additional tax revenue to pay for this $2.6 billion all on its own. This analysis doesn’t say that. This analysis says that you– if you pass these tax cuts, it will have a benefit for the economy. But it will also get you $2.6 billion less in tax revenue over the next 10 years. How you, you kind of deal with that less tax revenue is kind of the key to what the major increase in overall economic activity will be as of this. If you have to go back and cut back on spending significantly in order to pay for that $2.6 billion, then the economic impacts will not be as strong as we’ve laid out here. If for whatever reason, you have the surplus revenues because of the stronger economic growth over the next 10 years and because of the large reserves that you’ve set aside, then this is a pretty good representation of the type of economic results that you should see. 

 

Chesterfield [00:40:50] All right. I think I’m, I’m always a gloomy person, I guess, because I always think sometimes that we keep cutting and cutting and pretty soon we have to go up. People very seldom appreciate us when we cut their taxes, but they sure as heck don’t like us when we go up on their taxes. And so I am concerned if we have, for instance, a period of depression. Is that analysis written in here as to what might happen? Because as sure as you have inflation, you are going to have some difficulty. But there are always bumps in the economy, as you say, that can reduce the amount of income that the state enjoys. So you’re saying it may be maximized at 2.6, but God forbid it is more, then we are going to have to look at increasing taxes somewhere down the road in order to maintain the services that we currently have. Is that correct? 

 

White [00:41:46] Mr. Chairman, Senator, the, the forecast you have that I have up behind me now, that’s the 10 year baseline forecast. It does not include recession taking place sometime in the next 10 years. That kind of analysis could be done with alternative economic scenarios, but they’re not something that was included here. 

 

Chesterfield [00:42:02] All right. Thank you. Thank you, Mr. Chair. 

 

Sample [00:42:06] Senator Teague. 

 

Teague [00:42:12] Thank you, Mr. Chairman. About time you did something. I’m sorry. So did you look at other taxes while you were at this? 

 

White [00:42:24] Mr. Chairman, Senator, we were asked strictly to look at changes to the individual income tax. 

 

Teague [00:42:30] So from my personal perspective, it appears to me that our worst tax problem is sales tax, that 10, 12 percent in some places. And, and it appears to me if we lower revenue elsewhere, we’re going to see more efforts to raise sales tax further. So I just, I have concerns about the whole idea, and I don’t guess it’s your problem if you didn’t worry about it. 

 

Sample [00:43:03] Is there a question there? 

 

Teague [00:43:05] Sir? 

 

Sample [00:43:06] Is there a question or just– 

 

Teague [00:43:08] Wouldn’t you agree? Thank you, sir. 

 

Sample [00:43:13] Representative McClure. Representative McClure. 

 

McClure [00:43:20] OK. So I understand that the report that you’re giving us, these numbers that you’re giving, these are static and not dynamic. And perhaps this is a segue question into the dynamic portion of it. When we talk about consumer consumption dollars going back into the economy versus investment dollars going back into the economy, what is a difference in long term effect of that consumption dollar going into the economy versus the investment dollar coming back into the economy? 

 

White [00:43:51] Senator, Representative, that’s a great question. There are some timing impacts and there are also some geographical impacts. So from a consumption standpoint, most of that– well, it used to be that all of that consumption would happen in Arkansas. But now, because of online commerce, increasingly less of that consumption will actually take place in Arkansas. Theoretically, because of the new wayfare laws and all that stuff, much greater share of that e-commerce activity will be taxable and will come back to the state in terms of sales taxes. But it may not show up in terms of GDP. The second piece of that in terms of investment is a much trickier thing to grapple with because one, it doesn’t happen right away and the benefits of that may not sit within the 10 year window that we’ve laid out for this report. The second piece is a lot of that investment, especially if it’s, you know, if the average taxpayer making $80,000 a year goes out and invests that money in the stock market. The benefits of that investment may not accrue necessarily to the state of Arkansas because they may be investing in a company that has operations outside of Arkansas. The dividends, the interest, any payments that they receive, the capital gains on that investment will accrue back to Arkansas and that taxpayer. But it may not be investing there, which is one of the reasons why it’s difficult at a state level to capture all of the money from a tax cut, at least the same percentage that you would for a federal tax cut, for example. So those are some of the implications to think about. In general, as we talked about earlier, folks– those tax cuts at the 20 and 80, between 20 and 80,000 have a higher marginal propensity to consume, which means that their impacts will be quicker and will be more localized. Folks at the higher end of the income spectrum, they will still have an impact. They just won’t be nearly as immediate, and some of them might leak out into the rest of the country. 

 

Sample [00:45:51] Senator Dismang. 

 

Dismang [00:45:57] Thank you. Just a couple of points for some of the members that had questions. Representative Wooten, I’ve actually got it to work through and BLR and get it to us, but for some reason I’m getting so many emails on maps. I’m not able to track it down in my email. But we do have and can almost see what the savings will be per household per thousand dollars worth of income. And so you can see what the person making $22,000 paid versus what they will pay under the new scenario. And to Senator Chesterfield’s, you know, concerns about, you know, what if we cut too far, what if the economic, you know, the economy tanks and that sort of thing, and I think you all have referenced it in your report. That’s why it’s so critical we have that 20 percent set aside of the, you know, long term reserve. Because that’s going to give us a backstop, would prevent us from having then to, you know, completely gut, you know, essential services or whatever it may be due to the tax cut. I mean, and that’s really a testament to members on both sides of the Capitol that wanted to make sure that we had a robust true long term savings account for those downturns. So again, we can get both of those items to y’all. And again, I think they’re referenced in the report, and I understand it’s hard to see what the savings are percentage wise, but I’d be happy to help with any other questions on that. 

 

Sample [00:47:15] Senator Hickey, did you have a question? 

 

Hickey [00:47:19] Actually, Senator Dismang just hit on it. For the members that want to see that, that’s on the macroeconomic effects of proposed changes to Arkansas individual income tax on Page 4. And that’s what I was just going to bring up. And for you all to touch on was exactly what Senator Dismang had said. Because it says here and there’s been a lot of talk, you know, you know, what would, what would we do? And again, you know, if we, if we were to not have those surpluses in place, of course, at that point, we’re going to have to try to cut spending, which we all know how hard that is sometime or to do a tax increase. So again, I think with what we’re doing, I think that most, most people here are going to understand that this is a fairly aggressive tax cut, but we have been fortunate with what the legislative branch and the executive branch has done to get that money there. So we’ve heard a lot of talk and the reason we’re doing this here is because, you know, because we put this $1.2 billion back. You know, we’ve had a lot of people talk, well, we can use that money for tax cuts and we’ve been like, No, you can’t use that money for tax cuts. You have to, have to use that money to be available in the event that some of your calculations might not add up over year over year for a year or two so that you can use it. So that’s the reason that we’re kind of leaning on that if you’re wondering what’s going on. 

 

White [00:48:37] Mr. Chairman, Senator, thanks for that. And I should note that one of the things we do at Moody’s and you may have seen these reports in the past, we do a 50 state stress test every year. We stress test all 50 states to see what would happen if there was a recession. How much would they have to either cut taxes or increase spending and what would that do to their economy? And Arkansas has stood out in the past because they have not had that reserve fund. When that reserve fund was put in place a year or two ago, it was noticed in a very positive way. And so the degree that you have that kind of savings account, so to speak, to fall back on for times of economic distress, that is a huge plus for overall credit and for kind of the fiscal well-being of the state going forward. 

 

Sample [00:49:25] Senator Caldwell. Oh, Senator Ingram, I’m sorry. 

 

Ingram [00:49:35] Thank you, Mr. Chairman. You mentioned e-commerce and the revenue generated from that. There’s a number of us in this room that would be interested, were you able to break out what the e-commerce tax is being generated to the state of Arkansas? 

 

White [00:49:55] Mr. Chairman, Senator, unfortunately, the data wasn’t quite clear enough for us to do that, but it’s something the data is coming along, especially since they started working on it, defer to the BLR and DFA to see kind of where that data is. 

 

Ingram [00:50:06] You know, that’s a real coincidence. That data has been a little muddled getting to us as well. So thank you. 

 

Sample [00:50:14] Senator Dismang. 

 

Dismang [00:50:17] And so, and really, this is– you know, as I look at this and you kind of look at the analysis, and then this is my opinion or at least kind of what I take from it. You know, the federal stimulus dollars, whether, you know, however they came, in the many forms to help kind of prop up the economy, and right now, you know, we’re still benefiting in the state from that. And that’s going to benefit for the next year and a half or so. And when I look at it, you know, so the big threat to the state of Arkansas is if we have outbound. You know, so if we could become an outbound state. Right now, for two years in a row, we’ve been an inbound state, which more people are moving to Arkansas than exiting, which means that we’re increasing our tax base by a number of people. You know, in my opinion, what you want to be when the music stops and the federal money stops is continue to be an inbound state and set yourself up to be an inbound state. You know, there’s a lot of components that go into that and I’m not representing that tax cuts, you know, are the driving or the major driving factor, but it is a component when businesses look to locate or retirees, for instance, look to locate into the state. Is that kind of what– I mean, we’re not looking at a downturn per se, but what could be the crisis for us as a state would be if we lose that in-bound position that we have right now and start losing population. Is that, is that fair to see is probably one of the bigger threats that we would have at the end of the day?

 

White [00:51:39] Mr. Chairman, Senator, yeah, I think maintaining as an in-bound state is very important, especially if you look at the neighborhood that you’re in. If you look at the states around you– Tennessee, Texas, in particular, have no income tax. And so making sure that you’re at least competitive with them is, is an important factor. It’s not the factor, but it’s, it’s certainly a factor in terms of relocation decisions. There are other obviously very important factors as well in terms of quality of life and all that good stuff. But it’s certainly something to keep an eye on. The baseline forecast in front of you here, it could be much higher if there was significant inbounding in the forecast. It doesn’t assume that there’s tremendous, you know, outmigration either. So it’s kind of– the risks, I think, are to both sides of this. To the degree that inbounding or outbounding becomes the new norm over the next 10 years could sway what this baseline economic forecast looks like.

 

Sample [00:52:34] Senator Ingram. 

 

Ingram [00:52:38] Yes. You mentioned Texas and Tennessee does not have an income tax. We understand that. But how do we balance our income tax versus states that have tremendous amounts of revenues that we don’t? Our property tax is the lowest in the country. Tennessee’s will choke a mule. Texas has oil and gas revenues that we just don’t have. So how do we balance that, balance that with our income tax versus states that have other revenues that subsidize the reason that they don’t have income tax? 

 

White [00:53:15] Mr. Chairman, Senator, that’s a very noble question that could– we could have a whole hearing just about that. In general, though, I think you hit it on the head when you talked about the fact that when, especially when we’re talking about relocations, they are looking at the overall tax picture. They’re not looking just at income taxes, corporate or personal. They’re not looking just at sales taxes or property taxes. Every one of those is going to depend on the industry that they’re in and kind of what matters to them. So if it’s a very property dependent business, they’re going to look at property taxes and not be thrilled with it in Tennessee. If it’s a retiree, they’re going to look at income taxes and, you know, go the other way. So I think from a policy perspective, it’s incumbent upon you all as policymakers to determine what types of populations you really want to go after as part of the tax discussion and build that as part, as one component of your overall tax policy, which should be based on many components. 

 

Ingram [00:54:12] Members, are there other questions? Sen. Elliott. 

 

Elliott [00:54:18] I think, Mr. Chair, I want to ask a question of Senator Dismang. I’m not sure to whom it should go, but here’s my– 

 

Sample [00:54:25] I think that Sen. Dismang will take your question. 

 

Elliott [00:54:27] Direct at whoever can help. I’m just thinking about this over a 10 year period because I’m not, I’m not so concerned about what’s going to happen with people in either one of these tax breaks in the short term. But the amount of money that we are propping our economy on now, and I don’t mean that in a bad way, but we just have to know that all of the stimulus money, as was indicated in the presentation, is really a huge part of our being in such great shape now. And that’s, that is going to– we’re going to lose that here at some point. And when we, when we lose that stimulus funding, and if we have an impact, a negative impact on the economy in some way, the folks who are at the lower end are the ones who are benefiting the most services from income, from the taxes. Is the assumption that when we do reach hard times, we’re going to have enough money, for example, to continue the services for the people who need them the most,? Because in the event that that’s probably going to happen because I don’t know how we do without all of the money that we have now from the stimulus and stay afloat, the assumption is that we’re going to have enough to make, to make sure those folks who benefited from this tax break are not going to have to then bear the burden of some tax cuts or figure out some way to get along without the services the state has provided all these years. 

 

Dismang [00:56:24] Yeah, and so– I mean– there’s not much need to circle back to the long term reserve and how that can be the immediate prop up. I mean, I think, and that’s the whole point of having Moody’s take a look at what the impact of those stimulus dollars were. And if I read it correctly and they can restate it, you know, the stimulus dollars that came in helped prop the economy up. We would not be in the position that we’re in and we’re slightly above where we had been if there had not been a pandemic. With that, I think that’s, that’s one of the reasons I wanted to touch on this inbound and outbound type status. Because you do not want to be a state at the end of the day, that’s outbound when the federal money runs out. If you do that, then I think you’re finding yourself in a, in a terrible situation or the potential to. To, you know, Senator Ingram’s point and their point, too, it’s, you know, what type of folks are we going to attract or what folks are we losing out on right now? Because like it or not, retirees are very aware of the tax structure in the states that they decide to move to because it’s planned and part of, you know, them fulfilling the rest of their their life and making sure they’ve got the dollars to go, you know, that are going to last long enough. So if you just take, in my opinion, you take a look at the plan and what we’re doing here now, we’re, we’re becoming more attractive to retirees than probably any other population. The reason being, they’re out of their earning years. And so they’re not so much worried about income taxes as they are property taxes because they’re going to buy their home, their retirement home, whatever it may be. We have a, you know, a low cost of living. Those are things they’re going to take into account when they make the decision of where do I want to spend my time? And so again, I think it’s just making sure, and I think this is a step in the right direction as far as policy, that we are in inbound state. We continue to be an inbound state and we give a reason to be an inbound state. 

 

Elliott [00:58:14] Senator Dismang, I guess I can assume from that that all of the years we’ve been thinking about trying to figure out ways for people to take home more money– could you talk me maybe down off this ledge that I don’t know what the evidence is, and it might be somewhere that when we have provided tax breaks for the ones that are most well off, the ones that we tell– we always say are going to create more jobs, therefore more income. Generally speaking– I think somebody had referred to it before– for years we’ve been talking about trickle down income, and I’m not calling this trickle down income. But just the assumption that there are going to be more people hired. I don’t know what the evidence is that that’s borne out over the years. If there’s someplace I can go look and find it, that’s what I’d like to know. 

 

Dismang [00:59:17] Well, I mean, I’m not sure that I know– 

 

Elliott [00:59:19] You don’t have to do it now. 

 

Dismang [00:59:20] Specifically, but I mean, what I would say, again, if we just want to go back to the retirees point. You know, the lower that we make our income tax, you know, the closer we get to competitive with that and the fact that our property tax is lower, again, I think we are– we could become a magnet for that. If those individuals moved to the state because we are more attractive, then that means that they had– their services that they need to be provided need to be fulfilled by someone, which then in turn creates jobs. And I’m not– like I said, there’s a, there’s a whole long ways, and to his point, we could spend forever talking about what the impact of this or that are going to be. I would say, though, as a tax plan, when you look at what’s in front of us right now, I think it strikes a very good balance between the majority of what these tax cuts and who they’re going to benefit are going to be, you know, working Arkansas families. And of course, in that in the future, as any top rate is cut, it’s going to have a benefit on everyone that’s making above $38,000 here in the state. So again, to me, it strikes the right balance of making sure that we’re providing tax relief, simplification for working families, and then also, you know, showing that we are willing to be competitive on income taxes with our neighbors. 

 

Elliott [01:00:31] And lastly, would you classify that as more an equal impact or an equitable impact? Because I’m interested in the equitable impact. 

 

Dismang [01:00:46] I mean, I think if you look at the distribution of the dollars of the tax cuts, the fact that we’re talking about a quarter billion dollars, and what is it roughly? I don’t have in front of me because this wasn’t part of their deal. Again, I’m having a time getting through my emails. But you know, the vast majority of this– not the vast majority– the majority of this cut is going for those that are making between $22,000 and, you know, $85,000 a year, whatever the, you know, exact dollars are. And I think that’s, that’s pretty equitable. 

 

Elliott [01:01:15] OK, thank you. 

 

Sample [01:01:19] Representative Beatty.

 

Beatty [01:01:26] I guess the takeaway that I see from this report and I want to ask specifically is based on the current collection and revenue stream for the state of Arkansas. And then I understand with the budgetary process, that we as a, as a legislative body, we don’t go in and drastically increase our, increase our spending or the expenses or cut, make drastic cuts to taxes. But based on your analysis, the tax proposal that we’re looking at can sufficiently be covered from the surplus revenues that we collect without having an adverse effect on the budgetary process of the state. 

 

White [01:02:14] Mr. Chairman, Representative, I think the big takeaway here is that if you do this proposal, it’s going to cost you $2.6 billion over 10 years. 

 

Beatty [01:02:23] We understand that because it’s a tax cut, right? 

 

White [01:02:26] If, if you can’t pay for that out of additional revenues– or sorry– surplus revenues and reserves, then the economic benefits that we’re talking about here will not be nearly as large because you’ll have to offset that with cuts to state spending. 

 

Beatty [01:02:41] I understand that. But, but basically right now with, with the revenue stream that we have and what’s [?] the state, this tax proposal is acceptable and it’s something we should move forward with and it wouldn’t have an adverse effect on the budget side of the state right now? 

 

White [01:03:00] Mr. Chairman, Representative, as part of this, we didn’t take a very close look at the spending of the state. We only looked at the revenues, and so I wouldn’t be able to say that without taking a much closer analysis of the spending. 

 

Sample [01:03:16] Representative Wooten.

 

Wooten [01:03:20] Thank you, Mr. Chairman. I, you know, I hear all the talk about the downturn of this and that, but relative to the state government today, as it stands, we have 6,000 vacant positions. 6,000. That’s roughly $300 million at an average salary of $45,000 a year. But not only that, we passed legislation in the last session dealing with those positions that have been vacant for over two years. And that amounts to about $24 million. If just half of those 1,000 over two years vacant, if just half of those are budgeted, that’s $24 million or $23 million a year. You add that to the 95, that’s 118 million dollars that we have access to in the event that we have a downturn. And talking about being equitable, what we’re doing is we’re helping the people of Arkansas. I don’t care if you’re rich, poor, middle income. When you give them a tax cut, they appreciate it. They want it. They’re tired of the waste and efforts that have not been followed through with down here that we could deal with to reduce state government and the burden that it’s carrying. And one of the greatest burdens– 

 

Sample [01:04:50] Representative Wooten, are you asking the question or making a statement?

 

Wooten [01:04:54] My question is this will benefit everyone, is that right? Again, everyone will benefit. 

 

White [01:05:01] Mr. Chairman, representative, every Arkansas taxpayer would see a greater after tax income as a result of this. 

 

Wooten [01:05:09] Thank you. Thank you, Mr. Chairman. 

 

Sample [01:05:13] Representative Lundstrum.

 

Lundstrum [01:05:16] Yes. And this is– may I address the chair on this one? I need some historical or institutional knowledge. Didn’t we already pass a lower income tax and middle income tax cut before we got to this? We have in the past. So this is, this is an accumulation of keeping our word to start with a lower income tax cut, a middle income tax cut, and now we’re doing an upper bracket tax cut and smoothing out the edges, correct? 

 

Sample [01:05:42] You’re correct. 

 

Lundstrum [01:05:43] All right. So we’re actually keeping our word and following through? 

 

Sample [01:05:47] You’re correct. 

 

Lundstrum [01:05:48] Thank you. 

 

Sample [01:05:50] Representative McClure. 

 

McClure [01:05:53] You’ve mentioned several times reserves and the importance of reserves. As a general rule in the Moody rating system, a healthy state would have what percentage of its state budget in reserves? 

 

White [01:06:10] Mr. Chairman, Representative, I can’t speak for the ratings agency for really good legal reasons that we just talked about earlier. However, when we run our stress tests every year, every fall, which Emily will be starting on in just a month or two– she’s super excited about it. The, what we have found is a couple of things. First is that there’s no such thing as the average state. Every state is different. Every state needs more or less. If you live in Alaska or North Dakota and you make your money of oil and gas, you need a big reserve fund because it’s going to go all over the place. If you live in a state like Pennsylvania, which is where I come from, we need a relatively small amount of reserves because we get a lot of our money from sales taxes and they’re not nearly as volatile. So depending on the income tax or the, the tax structure of the state, those will go up. What we found, though, in the past is that if there was an average state, the median state would need somewhere between 13 and 18 percent to get through two years of a moderate downturn. Right? If you expect that the downturn is going to be more severe than that, not necessarily the Great Recession, but something very similar to the Great Recession, you’d need something more in the range of 20 to 25 percent of your reserves. 

 

Sample [01:07:37] OK. Members, seeing no other questions, we are adjourned.