Is the Brewer Tax a cure, or just symptom management?

“…the burden of government is not measured by how much it taxes, but by how much it spends.”  [Milton Friedman]

Before I get to the meat below, I wonder if the readers know historically what’s happened when a Republican controlled legislature in Arizona has voted to increase taxes?  Here’s a hint: Senate President Pete Rios.

Now to some meat … from the budget meetings …

Tuesday’s Finance Advisory Committee meeting key points of interest:

  • the state’s 2.7% personal income growth is the lowest since 1949
  • -5.9% year-to-date withholding loss – only exceeded in 1964 and 1983
  • Current economic instability makes forecasting especially challenging
  • The true impact of Federal stimulus is difficult to gauge
  • General Fund revenues are declining more rapidly than the budget forecasted
  • Rate of ’09 decline appears to be accelerating:

Percent change below FY 2008:

Jul -6.2%, Aug -11.1%, Sep -9.3% Oct -10.9% Nov -11.9%, Dec -12.1%, Jan -21.3%, Feb -33.4%

  • Liquidity Trap – Money not getting into the system.  Banks are still worried about covering their bad loans and covering their reserve requirements.  Credit will remain tight.
  • Stimulus package does not stimulate as advertised.  $800 Billion for social programs and only $30 Billion for economy.
  • Consumers – Too much debt, not enough traditional savings.  Paying for past purchases, no money left in homes, declining stock values, having to save more, tighter access to money and everyone is feeling FEAR.
  • Business – Corporations in good financial shape now can’t get credit.
  • Exports were booming but are now declining.
  • Tighter lending standards and a weak economy have acted as a drag on the housing market.
  • Economists predict that we will hit bottom in late 2009, stay level in 2010, slowly start climbing out in 2011, and not be back at 2006 levels until 2014.
  • There will be high inflation – they just don’t know how soon.
  • Every job category; Construction, Manufacturing, Transportation, Utilities, Financial, Professional & Service industries, Leisure & Hospitality, Mining & natural resources — all experienced declining employment.   The only two that gained employment are Government jobs (federal, state, and local, including education) and Health Services.

Federal Stimulus funding:  The governor is receiving approximately $1 billion.  Of this amount, $185 million is to be distributed at essentially her discretion.  The other $831 million (83%) is to backfill cuts in state funding of K-12 education and higher education.  PLEASE EXPLAIN HOW THIS WILL STIMULATE THE ECONOMY OR ADDRESS ANY ONE OF THE FACTORS CITED IN THE LIST ABOVE?

The last question:  Who in the Sam-Hill is Jan listening to?  Certainly not the economic experts at the Goldwater Institute!  A tax now would be simply throwing gasoline on a fire.

Credit:  Much of the above hard facts were provided by one State Senator who believes in keeping the voters informed, not just “managing constituent communications”.  Thanks Senator!


Comments

  1. Gotta say, even though my POV is about 180 degrees from VV, it’s nice to see legitimate, thought-out posts from Sonoran Alliance, rather than Chewie Shofir’s shortbus musings.

    Although, VV, I believe if you use “Who in the Sam-Hill…”, state law requires that you be dressed as a 1880s prospector and firing a pair of six-guns into the air.

  2. Veritas, good post with good facts. GI plan isn’t realistic though. The cuts they propose eliminate much of the stimulus funding.

    What is your solution? The facts show you cannot cut your way to the solution so what would you do?

  3. Oberserve says

    Wait till next year when revenue hasn’t gotten better. Are our elected Republican leaders going to call for an Emergency-Emergency “temporary” 1% tax increase on top of the 2009-2010 Emergency “temporary” tax increase?

    Is there such a thing as a “temporary” tax increase? No.

    Pile it on and watch the free market work its action…. in this case driving business out of AZ and to lower tax states.

    That is the right thing. That is a GOOD thing. Why? Becasue it’s the free market.

    If AZ wanted a piece of it, Republicans could stand for holding taxes constant or reducing them. They can choose to do the right thing at any time. Let’s see what they choose.

  4. If only it were true that you could get from here to there with cuts alone!

    The stimulus money will not back-fill the education cuts, it will come closer to fulfilling the federal mandates but still not cover 100%, but is very strictly controlled. There is a maintenance of effort (MOE) requirement that says the states cannot cut back too far or they lose the stimulus money, altogether. What this means is cuts must be very surgical and can only go so deep.

    The unattached portion does require other actions, part of which is a MOE, that restricts current and further future cuts in years to come. http://www.ed.gov/programs/statestabilization/guidance.pdf

    To avoid the President Rios phenomenon how about R’s, including those who feel walking out of the R Governor’s speech when they never did that to Janet-D, look at just how much needs to be cut. Then look at just what does that mean in “real money”. Wipe out the entire DES? That will not be enough. Are you kidding me?! OK, cut the non-MOE attached funding for schools, parents can drive their own kids or they can walk. Still not enough! Hmmm… how about we take away legislative Per Diem? Still not enough? Dang, what is left? Prisons…how to avoid those pesky ACLU lawsuits and still make cuts….

    Right size government, bring spending in line with revenue….what does that look like and how to you get there from here?

  5. Newsflash says

    Even Speaker Adams admits that we can’t get by on cuts alone. So what’s the fix?

  6. Veritas Vincit says

    Newsflash, pay close attention…

    The *current* state spending is unsustainable. A *temporary* tax increase only maintains some level of unsustainable spending.

    At some point state government must, like a drug addict, go through the DT’s before healing may begin.

    Ann, the devil’s in the details. Not macro statements but line item budget cuts like office supplies. In one office, a very minor item; but taken statewide?

    What is missing in this discussion is the fat middle management of state government. That’s where corporations have learned to trim down.

    Unfunded federal mandates should be closed down until the fed comes up with the cash, all of it.

    There are solutions, but some folks just can’t resist a tax increase using the fear factor because they know, no tax is ever temporary.

    I seriously wish folks commenting on increasing taxes (which was what the last governor had in mind as I was told by one of her legislative pals back in 07), would take an economics course.

    You simply can’t improve the economy by increasing taxes.

    The “fix” is to systematically reduce all agencies and programs of the state government to sustainable levels based on realistic revenue projections and to only allow increases when revenues prove that increases are sustainable.

    Live within your means.

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