A state with prosperity, lower taxes is possible

If we could start from scratch and redesign Arizona’s state-government programs in the interest of efficiency, effectiveness and fairness, they would look very different than they do now.

Ideally, state government would provide genuine public goods (in the strictest sense of the economic term “public good”) and provide a social safety net, with minimal harm to taxpayers and minimal drag on economic growth.

Government support for K-12 and college education (which now take up over half of the state budget) would be voucherized, with money going directly to families to empower them to shop among competing private and non-profit schools.

The vouchers would be means-tested so that low-income families received bigger vouchers, with a formula for extra subsidies for children diagnosed as having special needs.

If K-12 vouchers were deposited into tax-exempt education-savings accounts, families would have a strong incentive to bargain for lower tuition and to save and invest excess funds for future education, health and retirement purposes.

AHCCCS/Medicaid, which currently takes up a quarter of the state budget, needs radical reform. By correcting flaws in the federal tax code, we could encourage the vast majority of citizens to buy portable health-insurance coverage through tax-exempt health-savings accounts, with means-tested government support for the poor (including block-granted federal dollars).

For people who are too sick to be easily insurable in low-premium, high-deductible HSA plans, the government could maintain high-risk pools in coordination with private charities.

Along the same lines, unemployment insurance would be based on contributions to private, individual accounts so that individuals saved their own money when they were working and spent their own money when they lost their jobs, thus creating strong incentives to quickly find new jobs.

Many state highways and roads (which often involve public-good holdout problems) could be made self-funding through long-term private concessions to finance, build, maintain and operate new roads and new highway lane-mile capacity.

With the above reforms, Arizona’s general-fund budget would be $9 billion a year. Ideally, that would be funded with a broad-based retail sales-tax rate of less than 4 percent — no personal or corporate income taxes, and no local education property taxes (which currently take up at least half of people’s property-tax bills).

As long as we’re talking about the ideal world, let’s go further and assume that the federal government was limited to its proper functions under Article 1, Section 8 of the U.S. Constitution.

With a federal government one-fifth of its current size and funded by a 5 percent national retail-sales tax (eliminating federal income, capital gains, dividend and death taxes), Arizona taxpayers could readily afford to replace and reform many of the federal entitlement programs.

By paying for those functions with an additional statewide sales tax of 5 percent, we could limit the total combined federal, state and local sales-tax rate to about 15 percent.

With a total tax burden about 15 percent of GDP, Arizonans would have the most efficient, most pro-growth tax system in the developed world, resulting in real annual per capita economic growth around 3 percent.

At that rate, Arizonans would double their real wealth every 25 years.

The tough question is not whether this would be good for Arizona.

The tough political question is how we get there from here.

Tom Jenney is Arizona director of Americans for Prosperity, which seeks to educate citizens about economic policy.


Comments

  1. Conservative American says

    Instead of seeking to discern the will and wisdom of God, we rely upon our own ideas about what is best for us. But our ideas are self-centered, short sighted and deny the reality of our interconnectedness. Then we wonder why we have endless problems in our state, our nation and in the world. Legislation can’t solve the underlying problem. Only a change in the thinking of men can do that.

    It doesn’t take a great deal of reflection to realize that we adorn this world for only a brief period of time. When the body goes, we are ripped away from all of the material things we hold so dear. Those who spend their limited time here gathering ever more to themselves have missed the point and completely wasted their time.

    The world will change when we change and we change one at a time. When enough of the inhabitants of a state, a nation, of the world surrender to Wisdom, then our legitimate needs will be met without difficulty. Until then, we reap what we sow.

    • Sgt. Flapjaw says

      C. A. Very profound, except I see a rather large thread of naivete. We are where we are today because there are many people amoung us who don’t want to sow anything for themselves but want others to sow for them. There are many fakers who are very eager to take advantage of the opportunity to save the “victims” from the capitalist profiteers by instituting socialism to achieve fairness. These fakers are called politicians and union organizers and the truley clueless who do not know the flaws in human nature.
      I have not seen where you mention self reliance in your comment.

  2. We will ALWAYS reap what we sow, so I say “Quit Sowing!” Instead take care of your own needs and save your neighbor from having to look out for you.

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