Phase-out the Sales Tax on Groceries
The sales tax on groceries should be phased-out over a multi-year period using excess state revenues. The surplus means the grocery tax can be reduced by two cents in 2007. A gradualist approach is preferable to raising other taxes.

No Income Tax Increase. Reduce Top Rate to Highest Border State Rate By 2010
Arkansas has the highest income tax rate (top bracket) among bordering states. The top state rate should be reduced over a multi-year period to make Arkansas more attractive in the competition for capital investment.

Use Dynamic Scoring in Revenue Estimation
Dynamic scoring should be used in revenue estimation for any major fiscal proposals including any phase-out of the sales tax on groceries. Scoring should be applied to any proposal to adjust the income tax rate or the 1999 capital gains tax cut.

Use Cyclical Analysis in Revenue Estimation
State revenue estimates in the 2001-03 period missed the economy's 2000 cyclical turning point, leading to five downward revisions to revenues. Cyclical analysis should also be part of revenue estimation so legislators have an early warning system to prepare them for the next recession.

Use Performance Reviews to Identify Cost Savings
Performance reviews should be conducted in each state department to identify potential cost savings.

Performance-Based Budgeting and Activities-Based Costing
Gov.-Elect Mike Beebe sponsored a pilot performance-based budgeting program while in the state Senate. Policy groups welcoming the idea include the Democratic Leadership Council. Performance-based budgeting should be restored in at least one state department. Activities-based costing should also be incorporated into the state's accounting system so expenditures are linked to costs and measurable performance outputs.