Thu 9 Jul 2009
A Modest Proposal: Sales Tax on Steroids
Posted by DSW under Economic Development , Economics , State Budget , State Economy , Taxation[26] Comments
You know what they say. There’s two things you can’t avoid in life – Death and Taxes.
Ask most people to choose between a slow and painful death or a quick sudden death, they’d probably choose the later.
Let’s superimpose that over the current state budget fiasco. The Governor wants to run a one cent (18%) temporary sales tax increase over a three year period. She claims its a management issue – a need for cash flow and liquidity.
Instead of spreading it out over a three year period, what if the Legislature gave her the temporary sales tax increase but instead of spreading it out over a three year period, they put it on steroids and limited it to six months? In other words they see the Governor’s one cent and raise it 5 cents?
(Now of course, you know I’m being completely facetious and oppose any tax increases. But for the sake of having some fun with the current political game being played out between the legislative and executive branches, let’s play the game of what if.)
Does anyone doubt that a sales tax increase of that magnitude would snuff out any embers of economic recovery here in Arizona? Ask anyone who conducts those scientific studies in which they feed lab rats pounds of sugar over a 30-day period what happens to the rats.
The rat gets fat and dies. End of study. The truth is obvious.
Instead of raising taxes to make up the shortfall of revenue, what if the Governor did an about face and lowered taxes across the board – especially business taxes? Imagine all those California businesses scrambling to survive and preparing to move to Nevada or Texas.
My point in all this is is to illustrate the absurdity of closing our budget gap by raising taxes – especially during a recession. Many conservative Republicans remember the approach that the Reagan Administration took in which taxes were lowered and revenues actually went up! Thanks Art Laffer!
If the Governor really wanted to get the economy going, she would take a play from Reagan’s economic policies and lower taxes or eliminate them altogether! This would create an economic environment that would attract new businesses, new jobs, more cash liquidity and ultimately, more revenue for the State.
Unfortunately, ego’s often get in the way of common sense when your standing at 1700 West Washington Street.
July 9th, 2009 at 9:53 am
Your post ends early. It’s easy to forget that Regan had to increase taxes after the cuts…just like we’re going to end up having to do after the last few years of cuts here in AZ.
We should have saved money by making the rainy day fund bigger and forced controlled spending growth. We got lazy and went for the tax cuts. Now we’re paying the price.
July 9th, 2009 at 10:14 am
Would agree with maintaining an “Emergency Fund” for times like these.
But we also need to make sure that any spending parallels population growth and inflation.
Let’s face it. Under Napolitano, we got too big for our britches. Or, was it our eyes were bigger than our stomach?
July 9th, 2009 at 10:14 am
Tax cuts did not cause the problem, it is the fact that the size of government increased by over 67% during the Napolitano era.
As to your reference to Reagan, he was forced to accept a tax increase by a typical California Democrat left wing legislature. He had fought that increase and forced them to accept a smalller increase than they had proposed.
That is totally different than a “conservative Republican” governor forcing a Republican legislature to pass a tax increase that the majority opposes.
At least put your stuff in proper context if you want to speak about The Gipper.
July 9th, 2009 at 10:37 am
Just where is the FORCE you speak of? Putting the idea on the ballot does not make it a sure fire tax increase. I would be willing to bet it will not pass..so why all the fuss? Let the people speak.
July 9th, 2009 at 11:45 am
All are missing one key point- programming never leaves, social services are never temporary and keep sucking funds. We don’t need to fund any program that doesn’t prove it’s worth. Are we actually HELPING anyone with the life-long enabling services?
We do not need to raise taxes but conduct a system wide audit of all social services–do the recipients exit from the programs and exhibit beneficial returns? If not, the program is not valid and should be dropped. We have created a social Frankenstein, cobbled together by dead parts.
July 9th, 2009 at 11:46 am
I agree. Let’s get back to reality and dump all-day-K. We were just fine without it. And I still don’t see why they never called it “Welfare Babysitting”
July 9th, 2009 at 11:48 am
“Does anyone doubt that a sales tax increase of that magnitude would snuff out any embers of economic recovery here in Arizona?”
I doubt it completely. It amounts to cents spread out all over the population. It would not harm the economy.
On Laffer…that is a total joke. There is a middle ground on taxes, revenue, and spending that equals economic development and success. You all have cut govt. to the bone where we cannot compete with other states. PERIOD. You can cut taxes and get more revenue to a point…but that point was reached long, long, long ago. We have among the lowest tax burden in the United States…and we are in the bottom among states in areas govt spending that support economic growth. Education, transportation, and the like.
And…we are among the worst state economies in the nation right now.
You have held the legislature for 44 years. The most powerful body in the state. You have also controlled most statewide offices. You have complete control of the govt again and you go back to cutting taxes and govt. Hasnt worked here…won’t work…doesn’t work.
July 9th, 2009 at 11:52 am
Maricopa,
Janet did not increase govt spending by that much…and it was from a base that had been cut cut cut cut…and cut. In previous administrations and by the GOP controlled legislature for over 44 years!!!!
Janet restored spending that you cut and restored cuts that occurred in 2001. YOu know this and you continue to throw out this crap.
No one will believe it but teeny tiny portion of the GOP base that is left.
And by the way, your legisture passed those budgets.
Last, you ahve the power now and look what you cannot do…you CANNOT function. You CANNOT govern. Your party is the pits…it is refuse.
July 9th, 2009 at 12:00 pm
It seems as though the only argument you have is that “if REAL conservatives were in power, we’d be better off”. Real conservatives are in power and we are not better off. The argument the Burns and Brewer aren’t conservative enough doesn’t hold water. And what is happening right now should tell you something.
The fact that Brewer is even fighting you is proof positive that the people of this state do not want what conservatives are peddling.
July 9th, 2009 at 12:01 pm
Kral,
Please tell us what your vision of Arizona would look like if you had Democrats running everything? I’m guessing it would be constant class warfare against the productive members of society who would be abandoning the state for a more tax-friendly climate. If you were dictator, what tax rates would you set on everyone? Give us the Cliff Notes or Arizona Budget for Dummies versions.
July 9th, 2009 at 12:21 pm
rightwoman, “social services are never temporary and keep sucking funds”
Really? Most people agree that the welfare to work program instituted by a D President has been very successful.
July 9th, 2009 at 1:09 pm
#1 Brewer’s tax proposal is the same as Democrat Governor (and former DNC Chair) Ed Rendell’s proposal for PA.
#2 Just econ 101 its a dumb idea
#3 Brewer has revealed that she is a leftist.
#4 If it were true that government spending were efficient and required for economic growth, then logically, the entire economy should be socialized in order to maximize economic returns and prosperity.
Since we KNOW this is false, the opposite is in fact true, i.e. that in order to maximize economic returns and prosperity, you must DETAX and DEREGULATE. Anyone who behaves contrary to that is either
a) wontonly ignorant or stupid
b) a leftie
c) corrupt, as they or their associates personally stand to benefit from the government spenting
There is no d).
July 9th, 2009 at 2:01 pm
Um, Kral,
The Laffer Curve DOES find the middle ground on taxes.
July 9th, 2009 at 2:10 pm
For those who are not familiar with the ’80’s term, Laffer Curve, (other than the Ben Stein mention in Ferris Bueller’s Day Off) here is the link to the Wikipedia entry.
The Heritage Foundation also has a good historical presentation here.
July 9th, 2009 at 2:14 pm
Pinko Kral’s version of AZ would be big pay increases for him and his public employee buddies and the taxes to pay for them.
July 9th, 2009 at 2:17 pm
Kral,
Are you able to spend so much time as a liberal making posts because you are a public employee? I always go back to when I learned how hard a lot of them worked when I saw a couple of city of phoenix workers sleeping on the side of the road at 10 in the morning.
July 9th, 2009 at 2:20 pm
Kral,
The welfare program was put in during a Democrat presidency, but a Republican Congress. It would have never happened without the Republicans being in control. On the other hand, Janet was very good at working with RINO Republicans (anyone remember good old Linda Binder?) and getting her budget through. Frustrating that we had so many weak Republicans, but true.
July 9th, 2009 at 2:54 pm
Maricopa, a tax increase is a tax increase. I didn’t see any vetoing going on by the Gipper. I love the Gipper because he was a realist and would never be caught dead in the Republican Civil War we are currently in. We are eating our own and will pay the dear price for it. We WILL lose control next year if we keep it up. Mark my words. Bookmark this post. If we don’t get on the same page- admit what we already know and put it to a vote, we will be out of power next year.
2011 and 2012 budgets are 10 times WORSE than 2010. If anyone thinks for a second that decimating education in an election year won’t haunt us, get out of politics. (By decimating, I refer to what will have to happen this time next year. This years cuts were not decimating.)
If we were smart, we’d be giving in a VOTER decision for the tax while pressing hard, long term reform that will prevent the Nappy’s of the future. Alas, we aren’t smart and would rather call each other RINO’s.
Look at us, we idolize Regan yet he raised taxes, granted amnesty, and told us the 11th commandment was not to speak ill will of fellow R’s. Love how we pick and choose our idols.
July 9th, 2009 at 3:14 pm
Roger,
According to Wiktionary, “Decimate” = “To take the 10th part of anything.”
A reasonable individual would agree that 10% is not draconian, hyper or dramatic
July 9th, 2009 at 3:48 pm
DSW, Decimate originally referred to the Romans taking 10% of a bad military unit and letting the other 90% execute them. In that context it might be viewed as draconian. =)
July 9th, 2009 at 4:01 pm
DSW, that’s why this years cuts aren’t decimating. Next years though will absolutely be in excess of 10% without additional revenue. Which is why the ballot question should be on this November’s election. If the voters vote it down, it won’t be decimating, it will be a mandate. All the political cover you need is a vote of the people. It works so well for the immigration folks when they pass or reject measures, what is everyone afraid of?
July 9th, 2009 at 4:03 pm
Don’t listen to Kral about anything having to do with economics. He has a PhD and numerous published articles in the subject.
Studies have shown that education is unnecessary and unimportant, as demonstrated by George W. Bush. We should stop funding it altogether.
That would balance the budget.
By the way, kral, Gila Courier is gearing up its Giffonating. You may want to sharpen up your blogger sword and head over.
July 9th, 2009 at 8:11 pm
Ooohh…a phd in economics. Krugman over at the NY Times won a Nobel prize in economics. Still doesn’t take away the fact he is a liberal stooge. Kind of like our favorite liberal pinko.
July 9th, 2009 at 8:20 pm
There are plenty of self-made millionaires who never spent a day in a higher education setting. At the same time, there are many professors who are highly, dare I say, overly-educated and would never survive one day in the real world.
If there is one well agreed on generalization, it’s human behavior when influenced by reward or punishment. Taxes act as a punishment to the rational human being. If an individual works hard to produce something of value and the government takes it or a portion of it away, the person will no longer work hard because there is no longer an incentive – unless they’ve got a gun to their head.
Bringing this down to the real world, why would a businessman make a major purchase if he will be penalized further on the purchase? The smart business person is going to go out of state or delay his/her purchase.
And do you think that will NOT affect the current economy?
I do have to agree on one thing and that is that if you think this budget is bad, wait until the next two years.
We have been living way above and beyond our means and the only bubble that did NOT burst is the government one. It’s time to bring spending back under control and that means making the cuts.
If we don’t do it now and get this under control we are going to be even worse off and prolong this recession even further.
And then what will your argument be when there is NO money left and everything else gets shut down? All the other agencies and services will shut down and those people dependent on them will go looking for the Arizona Education Association who crashed the entire system.
July 9th, 2009 at 9:13 pm
Arizona has been cutting taxes for 30 years. Every tax cut is preceded by claims it will bring businesses from nearby states, raise personal income levels, and increase government revenue. It simply hasn’t happened because people and groups in fact make decisions in much more complex ways that simple rewards and punishments. For instance, the claim that low taxes in AZ will drain all these businesses from CA. If lower taxes was the simple motivator this would have happened long ago. Of course it does not, because there are other advantages in being in CA for businesses as there are in moving to AZ.
Simplistic claims about tax decreases using Reagan as an example are problematic. Even if one assumes the tax decreases were largely the cause of some economic growth, these decreases were from a marginal rate of 74% to 24%. This does not mean every tax decrease causes economic growth or an increase in government revenue. In fact, there are many counter-examples to such a claim and even looking at the left side of the Laffer curve, which is largely a propaganda tool rather than a actual economic model, makes this case.
July 9th, 2009 at 9:51 pm
DSW,
You are just wrong about taxes being punished and you are also wrong about the “plenty” of millionaires without higher education. There aren’t…that many. Education…IS…the gateway to allowing people to pull their bootstraps up.
You asked my cliffnotes. Here goes. I don’t think we should tax people into obscurity, but I strongly object to our state being near to last in everything…I strong object to our staying paying for little in comparison to other states, and I strongly object to the philosophy that if you take us down to the bare bones (as you seem to advocate) that people will be better off, that people will make it or make do, and that our economy will benefit.
You posted the Laffer curve above. Laffer’s curve ain’t perfect. Its theory and it has failed many empirical tests. Even so, lets pretend he was right. What you all are advocating is getting closer to the zero tax point…I would argue that we are closer to that than we are to the other side. We certainly are on the drought side in comparison to other states…and because of it, we have little revenue.
But Laffer’s experiment on the back of a napkin (as the story goes) is a model and one that includes two variable…taxing and revenue…the world is much more complicated than that. Without govt spending on such things as education, transportation, public health, public safety and public welfare…without a reasonable amount, an economy slides into the toilet. His model doesn’t have that in the equation. You all have to know I am right about this because you advocate for govt. spending in public safety now dont ya? And well…you advocate it for wars? Right? So how can we not spend a paltry sum in comparison, work to the middle of Laffer’s curve, and use govt effectively…as it can be done…to bring economic development and improve the lives of its citizens.
No one wants to pay taxes…its called the free rider problem. It is why most charities…and even charter and private schools…turn to public dollars. Its because if we left everything to the market…we’d all be doomed..and the real inequalities in our world, would come to roost in a way that none of us could ever conceive. Its why there is revolution all over this earth.
At the base level, how can any of you say that a child born into poverty doesn’t deserve the help or at least educational opportuntiy to be where you are? If you say no to that, you are callous, if you say no to that, you are greedy, if you say no to that or answer with theory that someone, somewhere will do it with charity, you are a fool. And last, if you believe like I once did, that “no one helped me”…then you are dillusional. Because if you are successful, if you grew up in a good family, if you had neighbors that looked out for you, if you got student loans, someone helped you…and you were lucky…not smarter than everyone else…or harder working.