Sales Tax Increase? Easy Answer

Alberta H. Charney, in the Eller College of Management Spring economic report, wrote an  article, “What Will It Cost If Voters Reject the One-Cent Sales Tax Hike?” The article is a textbook piece propaganda.

 Charney stated that passing the sales tax will raise about $1 billion annually (taking it from the private sector) But, she goes on to state, the government spends those dollars, pumping money back into the economy: “That spending by the public sector adds to aggregate demand just as private sector spending does.” 

My analysis: taking money from the private sector to pass through government to prime the pump of the private sector is not only inefficient but also ineffective:  government has to spend part of that tax money on its own operation. For example, the government tax removes $1 billion from the private sector but returns, for example, only $800 million to the private sector. In effect, government is always less efficient because it has to use part of the tax revenue to tax, collect and spend.

 Then she works her way through an analysis that the cost of the sales tax increase will cost Arizona only 7,400 jobs. Failing to approve the sales tax increase will cost Arizona 20,500 jobs. What she doesn’t say is the 7,400 jobs are in the private sector; the 20,500 jobs are in the public sector. Ergo, approving the sales tax increase will save over 13,000 jobs.

 As I read it, saying no to a sales tax increase reduces the size of government not the private sector. Saying yes to the sales tax increase reduces the size of the private sector by eliminating 7,400 private sector jobs, saves 13,000 plus public sector jobs, does not reduce the size of government and increases taxes by $1 billion during a recession.

 I know how I’m voting.

 


Comments

  1. AMEN!

  2. Me too!

  3. Hater of Children and the Sick says

    Very nice. But we all know the best reason to vote Prop. 100 down is to stick it to kids and the infirmed… and to retire Jan Brewer.

  4. THat’s the CHOICE of the politicians isn’t it to determine where spending cuts are made. They want to pay hardball with voters and trench warfare by digging in and refusing to cut extraneous government luxuries and go for programs to make everyone squeal, then balme them, not the voters who know every well there is plenty of fluff that can go first.
    Then the shills run around rending their robes and wailing and caterwauling that voters are “meanies.”
    The problem we all have now is that the politicians have so irresponsibly overspent that business as usual isn’t sustainable. We can knuckle down and cut back or be in denial and then the ENTIRE thing crashes – and no way to stop it once it starts to collapse.

    Then we’ll see some REAL tears when the rending of robes and wailing starts.

  5. Hater of Children and the Sick,
    People who work in the private sector never have sick children eh?
    I’ll join you in supporting the idea that both Jan Brewer and Proposition 100 are worth voting against.

    May 18th is coming soon. November is not that far off.

    http://NovemberIsComing.com/

  6. Delusional Bill says

    Anytime that you take money from a citizen and give it to the government to spend, you are in effect telling that citizen that the government knows best how to spend the citizen’s money.

  7. Oberserve says

    The easy answer is NO.

    Look at the paper. Look at the state legislature. Look at the governor.

    They are overtly THREATING us.

    Pass the tax increase OR ELSE.
    OR ELSE:
    -schools will close
    -prison doors will fly open
    -the ambulances will stop running
    -children, infirm and old people will die

    It’s the same mantra, over and over.

    It is the clarion call of the political scoundrel.

  8. Thank you so much for the clarity of thought. You got my vote.

  9. You are either purposely misrepresenting what the article says or you didn’t actually read it. The article doesn’t say that public money is used to prime the private sector. It says that the money raised from the tax will go to support jobs and services provided by the government. And yes, not all of the money will be spent in the private sector, in fact the article points out that many of the services provided by the government are labor intensive which means that the money goes to provide jobs. The article also points out that any projected job losses in the private sector as a result of the increased tax will be offset by the number of jobs created by the increased revenue which is a net positive for the State of Arizona.

    But hey, go ahead and vote against the tax. I’m sure if it fails you and the other writers on this site will band together and pay a teachers salary or pay for some highway improvements. Yeah, I didn’t think so.

  10. “It says that the money raised from the tax will go to support jobs and services provided by the government. And yes, not all of the money will be spent in the private sector, in fact the article points out that many of the services provided by the government are labor intensive which means that the money goes to provide jobs. The article also points out that any projected job losses in the private sector as a result of the increased tax will be offset by the number of jobs created by the increased revenue which is a net positive for the State of Arizona”
    ……………

    Read that again. So, how does one pay for said government jobs if the source where the government gets ALL its money is shutting down due to high taxes – closing, job losses?

    Government TAKES wealth, it doesn’t make it. The jobs it provides are not wealth-producing in any way shape or form, SOME are necessary, but the majority are just a comulative drag on the free market economy.

    This is nonsense.

  11. Sometimes I think we should let people like you opt out of paying taxes and then we could prohibit you from using anything funded with them. Want to get somewhere, build your own road. Want to post something on the internet, sorry you can’t because the internet was created by the government. Want to buy food, sorry grow your own – USDA inspectors have been involved with everything in the supermarket. And lets hope you never, ever get sick or incapacitated because we could just leave you out to dry.

  12. wanumba –
    95% of the people in the country are paying less in taxes this year than last. The economy is not in the tank because of taxes, it is because the government, under your ‘free market economy’ theories refused to regulate highly risky derivatives and continuously denied we were in the midst of a housing bubble. You are speaking nonsense.

    It is nice to read Dr. Charney thorough reports on exactly how she arrives at the numbers she does. THis is in contrast to the Beacon Hill so-called ‘report’ which the Goldwater Institute paid for which apparently, although no one knows for sure because it is all kept secret, believes that when government receives tax money it takes the cash and burns it in an incinerator. Your lack of understanding of basic economics is quite astonishing for someone who claims to have such wide-ranging knowledge.

  13. Stephen Kohut says

    todd,

    I’m sorry, I’ve checked all my pockets, my check book, my pay stub and can’t find that Obama tax cut. Oh, that’s right, it was $8 a week, a couple of cups of coffee. For those of us old enough to have worked during the Reagan cuts, we know what a tax cut is and how it an drive a recovery. The Obama “cuts” are one shot pocket change.

    If you want to understand what happened to the economy, you might want to take some econ classes from a classic school professor as your knowledge is woefully lacking.

    The housing bubble was driven by a combination of federally mandated “community redevelopment” loans to people who could never afford them combined with interference in the mortgage market by Fannie’s and Freddie’s packaged reselling of mortgages into debt backed bonds that break the tie of the lender holding onto the debt and the risk/reward relationship of of a borrower asking for money and a lender calculating if the borrower can repay.

    The housing bubble broke in 2006. Investor moved money from real estate into stocks driving a bubble there. The stock bubble burst and the money exiting there went into commodities, oil as an example. When it was obvious that we were in a world recession the money finally flowed into bonds. Welcome to a classic boom/bust cycle exacerbated by well intentioned but detrimental government regulation of the free markets.

  14. John Says:
    April 14th, 2010 at 9:46 pm
    You are either purposely misrepresenting what the article says or you didn’t actually read it. The article doesn’t say that public money is used to prime the private sector. It says that the money raised from the tax will go to support jobs and services provided by the government. And yes, not all of the money will be spent in the private sector, in fact the article points out that many of the services provided by the government are labor intensive which means that the money goes to provide jobs. The article also points out that any projected job losses in the private sector as a result of the increased tax will be offset by the number of jobs created by the increased revenue which is a net positive for the State of Arizona.

    John, creating or saving jobs in the public sector can only work if the private sector is healthy. If the private sector shrinks, as it has done, government must shrink also, otherwise deficits and debt soar . . . as it has.

    Simply said, there is private sector tax revenue and public sector tax expenditure:
    the reverse concept does not and cannot exist.

    By the way, you wrote: “The article doesn’t say that public money is used to prime the private sector.”

    The author wrote: “Government doesn’t bury . . . the proceeds – it spends those dollarsthereby pumping money right back into the economy.”

    The economy, John, is the private sector. GDP is approximately $14.6 trillion. The 2010 federal budget is 15% of GDP. Actual outlay, including deficit, brings spending to about 25% of GDP. No matter how you slice it and dice it, the economy is the private sector.

  15. “The housing bubble was driven by a combination of federally mandated “community redevelopment””

    Actually no it was not Stephen. In fact, loans under the CRA have lower default rates than the general population of home loans. The effects of the housing bubble would have been negative, but what really sent the economy in the tank was the effects of the mortgage derivatives markets. I know you want to blame the bubble on poor people getting homes, but that is simply not the case and the continued assertion that it is only reaffirms the fact that you are not informed about the issue.

  16. To Stephen, John and Todd, I posted the following article on American Commentaries in September 2008. The article may provide additional perspective to your discussions.

    “The Glass-Steagall Act, aka the Banking Act of 1933, ensured that banks were prevented from participating in the investment business. Additionally, the New Deal also proposed and passed a bill creating the Federal Deposit Insurance Company. As the Supreme Court held, in 1971, in Investment Company Institute v. Camp, “The legislative history of the Glass-Steagall Act shows that Congress also had in mind and repeatedly focused on the more subtle hazards that arise when a commercial bank goes beyond the business of acting as fiduciary or managing agent and enters the investment banking business either directly or by establishing an affiliate to hold and sell particular investments.”

    Business interests had been incrementally encroaching on the dividing line between commercial and investment banks for some time. In 1996, Alan Greenspan, in his role of Fed Chairman, issued a decision allowing bank holding companies to invest up to 25% of their securities. Greenspan’s decision was the major beachhead in eroding the Glass-Steagall Act. Sandy Weill, the head of CitiGroup, and a strong proponent of repeal, was key in aligning Congressional support for the bill. Treasury Secretary Robert Rubin, the former co-chairman of Goldman Sachs and a strong supporter of the repeal, joined Weill in convincing Clinton to sign the bill. In 1999, President Clinton signed the bill repealing the Glass-Steagall Act. Shortly thereafter, Rubin went to work for Weill.

    Since 1999, both political parties have put pressure on the financial sector to increase mortgage loans to minorities. The pressure ultimately led to altered underwriting standards. The standards were lowered to the point where Fannie Mae committed, to the Department of Housing and Urban Development, half its business to low and moderate income brackets.

    From 2002 through 2007, White House and Treasury Department Staffers started pressing for significant reforms of Fannie Mae, Freddie Mac and other government sponsored entities. In 2003, Barney Frank, in response to Administration’s overhaul plan, stated, “These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” The Washington Post wrote that Barney Frank opposed any attempt to regulate Fannie Mae and Freddie Mac stating that regulators “would sacrifice activities that are good for consumers in the name of lowering the companies’ market risks.”

    Over the years, White House, Treasury and Council of Economic Advisors pushed for the following changes: require Fannie Mae and Freddie Mac to submit to regulations of the SEC; adopt FASB standards of accounting; follow bank standards for capital requirements; shrink their portfolio of assets from risky levels; and allow regulators oversight to monitor the firms. In 2005, in support of the Senate Bill 190, John McCain stated, “I join as a cosponsor of the Federal Housing Enterprise Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American Taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.” Senators Dodd, Kerry, Obama, and Clinton, the top four recipients of Freddie Mac and Fannie Mae contributions from 1988 to 2008, successively opposed this measure.

    Barney Frank has blamed Republicans and deregulation for our current financial problems, yet it was Democratic leadership, Barney Franks, and Senator Dodd that continued to fight reform of Freddie Mac and Freddie Mae. Accounting irregularities were covered up be Freddie Mac, Fannie Mae, Barney Frank, Chris Dodd, and Democratic Leadership.

    The dishonesty and cover-up continues today. The Democrats have a majority in both Houses of Congress and could drive their own bailout solution. They need Republicans to concur on any solution. Senator Harry Reid claimed he had an agreement yesterday when there was not any agreement, so he attempts to blame McCain and the intrusion of Presidential politics. I find it astounding that the House Republicans were excluded from discussions. The fact is the Democrats are the primary cause of the financial meltdown while the Republicans are not without some blame.

    The Federal Bureau of Investigation has initiated investigations into at least twenty-four cases of fraud involving Fannie Mae, Freddie Mac, AIG and Lehman Brothers. The FBI, Senate and House have an obligation to investigate Senator Dodd and Representative Frank, removing them from their chairmanship positions pending completion of the investigation. Both individuals were complicit in financial meltdown..

    Additionally, when members of Congress raised the red flag of accounting irregularity, like Senator McCain, urging greater oversight, both Dodd and Franks fought against the proposal. The fact that these individuals were receiving contributions and sweetheart loans from Government Sponsored Entities is a blatant conflict of interest. Congress is becoming nothing less than an organized criminal cartel. The conduct of Dodd and Franks fails to pass the sniff test. Failure to take action against Dodd and Franks will reveal how corrupt Congress really is.”

  17. Stephen Kohut says

    Richard,

    Thank you. Well written review of the tragic mess. I was giving todd the “nickel tour” explanation of the political drive for “affordable housing”, weakened underwriting rules giving loans to people who should never have qualified and the enabling of Fannie/Freddie in the secondary market. Anyone with a business background knew it had disaster written all over it and disaster is exactly what happened.

    todd,

    I held a real estate license for a number of years and did real estate development. I’m looking at this from the inside and well understand how the bubble formed and popped. Where does your experience in real estate come from?

  18. RDBrinkley – I was vehemently opposed to getting rid of Glass-Steagall Act (although it had been effectively made irrelevant by a couple decades of slow chipping away of many of its provisions.) I also think Dodd is in the pocket of the financial industry, as is evidenced by his campaign contributions. Both GOP and Dems who balked at more reform and oversight are to blame. I would also add that the record of GOP lawmakers is not as clean as you suggest, and in fact we can see now their resistance to any reform.

    Having said all that, Fannie and Freddie were quite late getting into the subprime loan market as this was largely driven by the private sector and the housing bubble. Attempts to blame low-income Americans or efforts to end racial discrimination in lending which had nothing to do with this debacle, as Stephen is attempting to do, are both inaccurate and morally despicable.

  19. kralmajales says

    If this stupid and regressive tax increase doesn’t pass then look for riots. This is the most irresponsible piece of legislation by our gov. that I have ever seen. It is only a slightly better poison pill than the one that we would have been made to swallow if the rest of the conservative GOP were able to send govt spending levels back to levels where they were at in the 80s…and before Arizona’s population nearly tripled.

    You all are just great at saying that we should cut our way out of this deficit… and after tax cut after tax cut.

    Just where will you cut? Tell us all that? There aint that much left anywhere without doing real harm.

    This is why even the conservative Chambers of Commerce in this state are backing the tax increase. They hate it but they know that this state has to compete, do business, and I think they SECRETLY see the anything but passing it as the end of the GOP.

  20. kralmajales says

    So if this doesn’t pass, tell me this? Where will you cut? Next, tell me this are you going to have the guts to face it?

  21. Stephen Kohut says

    kralmajales,

    The is not rocket science. You go where the money is and get ride of what is not necessary.

    1 – As I have said before, substantial cuts need to be made in K-12 spending per child and we need to get the teacher/non-teacher ratios in line with nonpublic schools. We spend $9.4K/kid today. We should be spending $4K/kid (1970 spending adjusted for inflation). We are spending almost 2.5 times per child more than we should be and getting a worse product than we did in 1970.

    2 – Either cut back eligibility on Medicaid (AKA AHCCCS) to what is was several years ago or opt out and tell the Fed’s to bound sand.

  22. 1. Those figures are full of beans. We have some of the lowest spending on education in the nation…and the highest population growth. We cannot run our schools on this. There is little administration left that is not required to keep the ship afloat. Teachers are being laid off in droves. And without this funding…or some funding…it will be massively worse.’

    If you are a parent, listen carefully. Stephen is so very wrong and I so very glad that he is in the minority.

    2. Medicaid eligibility has been cut back and cut back and cut back.

    Each cut you make comes with real costs…human costs and economic costs.

    This is why the business community at large…the Chamber of Commmerce…is supporting this. They don’t like it, I don’t like it, but it must be done.

  23. SO, it’s seems that the arguments are on one of two sides : them’s that actually PAY tax and them’s that don’t.

    I am really warming to the idea that only people who pay income tax should be allowed to vote. Non-paying people just want more more more because they get all the benefits without any sacrifice.
    It’s on YAHOO! today that the Obamas made $5.5 MILLION dollars in 2009. How NICE. On a government salary, no less. They’ve got a million-dollar house in Chicago, they have million-dollar vacations in Hawaii. The US State Department is sticking liquor bills to the US taxpayer, which pale in comparison to the bills the US taxpayer is getting stuck with to put State Department staff kids in outrageously expensive international schools.

    And WE are supposed to sacrifice. We ARE sacrificing, but the government isn’t. Has Nancy Pelosi given up any of her homes? How about John Kerry? John McCain? Nope.

    Could the millionaire Democrats have some pity on us work-a-day folks and consider taking off some taxs off our gasoline, which doubles even triples the cost to the consumer? No. No. No. They also think we need to pay more taxes on electricity, and water, too.

  24. …………..
    roger Says:
    April 15th, 2010 at 12:08 pm

    If you are a parent, listen carefully. Stephen is so very wrong and I so very glad that he is in the minority
    ……….

    That’s funny. This parent has found by hard experience dealing with multiple schools that Stephen’s statements are completely in line with the reality of the state of schools in this state.

    But your statements reek of talking points and partisan agenda promotion.

    How curious! Should one deny what one’s eyes are seeing, one’s ears are hearing, one’s checks are paying and rely on heresay?

  25. Stephen Kohut says

    Roger,

    “1. Those figures are full of beans.”

    I can back every one of my figures from published reports and studies and have previosuly posted links to a number of them. Where are the reports and studies that back your claim?

    “…and the highest population growth.”

    Are you functionally illiterate or just failed math? Is there some part of normalized per child spending you don’t get? Population growth is irrelevant.

    “We cannot run our schools on this.”

    Private schools do it for $5.5K. I don’t have my state figures in front of me but charters run about 15-20% less per student than public schools.

    “There is little administration left that is not required to keep the ship afloat.”

    Per the state’s own reports there is one non-teacher for every teacher. Not enough admin? What are you smoking son? That is featherbedded to the max with dead weight. Obviously you have no experience in private sector for profit businesses to be able to make a silly claim like that.

    “Teachers are being laid off in droves. And without this funding…or some funding…it will be massively worse.”

    Do you think that the powers that be would cut admin first? No way! Gotta put the knife to the techers throat and tell the people “Don’t make me do this!” My response would be, do it and you will be out of your school board seat at the next election or fired it your are a superintendent.

    “2. Medicaid eligibility has been cut back and cut back and cut back.”

    Is there some part of the massive expansion of AHCCCS that was done by ballot measure that you missed a few years ago that was sold as being paid for my tobacco settlement funds but is reality draws anything it needs from the general fund. You must not have lived in AZ when the people were sold that particular bill of goods.

  26. The Charter school our kids go to is dropping teachers and courses for September since they were told by the state they aren’t getting the money.
    They are getting whacked first, with less resources than the local public school to begin with. They do a much better job than the local public school academically, but the education establishment would like them to disappear.

    All this whining about charter schools getting so much, but it’s not true. They get less, but they do more with it, and now they will be squeezed harder than the public schools because their competition has never been welcome.

  27. kralmajales says

    They are not getting whacked first Wanumba…most all school districts are losing teachers…and are getting creamed. Most districts are pretty proud of their charter schools. But when face with an avalanche of cuts…well…no one escapes. and I love the inflated numbers that Kohut provides from Goldwater stats…which never ever stand to any kind of peer review standard that would insure what must would call facts. The highest proportion of funding for schools comes from property taxes. We have some of the lowest property taxes in the nation. The disparity among schools and districts is easily explained by the fact that rich school districts are also those that have extremely hight property tax bases. Tucson Foothills for instance. It is also the most difficult place for people to afford to live in town. So the rich get rich school districts…the poor get less…and yes Wanumba, charters have been a way to try to siphon off some of the good students from other schools in the same district…which in turn leaves those that dont get in…screwed.

  28. kralmajales says

    Kohut,

    Normalized per child spending does not account for the cuts taken to state budgets…when those state budgets are cut, it kills that per child spending ratio you completely through out. And you forget to compare those same numbers to similar ones in other states and over time. We are so far behind it aint funny…and now its getting worse…and at a time when the population, as Roger notes, is increasing. More kids to educate…a higher aggregate budget.

    It also doesn’t account for the need to build physical plants, build new schools, update with technology…and on top of the Goldwater fraud you are peddling as numbers, you are also forgetting that. All this really comes from property taxes which I bet you also want to see cut…and that have been cut.

    I know you wnat to starve and kill the govt. beast, but don’t claim that things will be better for it. They wont. And most parents in this state think that this kind of thinking is neandrathal.

  29. Stephen Kohut says

    kralmajales,

    Public and charter school spending per child are directly from the state. What other states spend is irrelevent as local costs impact those figures. Spending quoted is all in per child and includes capital. That handles population changes and infrastructute. You should learn a bit about budgetting, capital projects, etc. if you are going to try and sell your nonsense and sound credible.

    You used the right word for this, beast. Starve it? Yep. Right down to what we should be spending. Only liberals and idiots that believe in massive government push spending more than is truely necessary. What is necessary is a fraction of the people are getting taken for. Property tax cut? Yep. You got that right.I can’t wait for the 2010 and 2012 election cycles. We have a lot of deadwood and liberals to send packing.

  30. The gorilla in the room:
    Unfunded teacher pensions:

    http://www.manhattan-institute.org/html/cr_61.htm

    Government loves to manage pensions because they then have access to more money, but they invariably borrow, always deluding themselves that payout day is always “next year.” If pension plans were private, the individual would have control, and the pension would not be tied to any particular job or company or government employment.

    Government always claims it knows best to manage other people’s money, but it proves time after time after time it cannot be trusted to act in the best interest of the individual. If it did, then pensions would have been private from the get-go, not mandatory deductions into a government pot.

    WHere are the irate complaints and data and stats and arguments directed at the mismanaging mismanager politicians and bureaucrats who passed laws and regulations and made decisions about pensions under their control? Never hear it. Aren’t they the ones who “didn’t care” about kids and teachers? THEY took their money and wasted it.
    The bad guys are NOT the people who are fed up with this official thieving.

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