Tax increases becoming too common in Arizona

by Byron Schlomach, Ph.D.
Goldwater Institute
 
When government revenues drop during economic downturns, there are only three choices government officials have at the state and local levels. They cannot print money so they are left with reducing spending, raising taxes, or borrowing. Raising taxes is the worst option, with borrowing a close second.

Raising taxes assaults the very marrow of the economy; draining resources from the private sector at a time when it can least afford the loss. Borrowing money means an uncertain future burden. Both options make it harder to weather future economic storms. Right now, the state is spending $700 million more each month than it is collecting in tax revenue. All levels of Arizona government have a combined $41 billion in bonded debt.

Yet, many in government seem unconcerned. Everywhere one turns, new taxes are proposed. On Tuesday, Scottsdale and Tempe voters approved higher taxes on hotel room rentals. Phoenix just imposed a 2 percent food tax. The legislature is considering raising car rental taxes to pay for a new spring training stadium for the Chicago Cubs. The legislature also wants to raise license plate fees. Tucson is pondering a number of potential tax increases.

On May 18, voters across Arizona will consider an 18 percent increase in the state sales tax. Studies show that raising the sales tax by 18 percent will cut the state’s real economic output by $1.2 billion and that Arizonans will see their total after-tax income, already hit hard by recession, fall by an average of $300 per household.

What’s more, these proposals don’t take into account that the state’s property taxes went up this year, or the electricity tax passed by the Corporation Commission a few years ago.

This state has lost more than 10 percent of its private employment compared to its peak. State and local governments together have lost less than 6 percent of their workforces. The capacity of the private sector to pay higher taxes is at the breaking point. Even with an economic recovery, increased taxes will only feed an even bigger government that will be that much harder to finance in the next inevitable recession.

For now and for the future, reducing government spending is the only principled solution to the problem of shrinking government revenue.

Dr. Byron Schlomach is an economist and the director of the Center for Economic Prosperity at the Goldwater Institute.


Comments

  1. Oberserve says

    Let’s not forget the governor’s “cost shifting” plan (that the legislature is rubber stamping).

    “Cost Shifting” only means that the legislature is pushing the hard decisions to the counties.

    All the counties will do is “shift” the cost directly to our property taxes.

    Given that the state of the real estate market has not improved and that fewer and fewer people are paying property taxes, it has a multiplier effect on the people who are paying property taxes.

    The county says, I want to spend X. Who is paying property taxes, what is their assessment sum of values (=Z)? Once we know X and Z, we set rate (Y) to balance the equation.

    Since fewer and fewer people are contributing to Z, the rate Y needs to continue to go up until the county gets it’s total desired levy X.

    So get ready for massive property tax increases this year and next. You can expect your property taxes do DOUBLE over the next two years.

    Who cares about a palsy $650,000,000 that the 1% sales tax will bring in.

    The fewer and fewer who pay property taxes will pay far MORE THAN THAT just in the INCREASE in property taxes alone.

  2. Sarka Scarpulla says

    Exactly. The craven politicians that lead the Legislature do not have the fortitude to deal with the real problems we face. They hide behind brandished ideology and affected rhetoric while subordinating their sworn responsibilities to the local level. These are quite simply unfunded mandates. Perhaps not directed by statutory law, but they are unmet needs of our communities that will have to be funded by the lower political subdivisions.

  3. What about the massive amounts of what should be Arizona state tax money that is being diverted from the state coffer into the pockets of wealthy parents who use the cash to pay their own kids’ tuition to private and parochial schools under the Arizona tax credit program? Repeal this law and help fix the state’s desperate budget problems.

  4. Sorry R.,

    Isn’t that the parents’ money to begin with?

    Which lib blog linked you over to here?

    🙂

  5. No “lib blog” linked me over here. I thought maybe there were intelligent open-minded people here trying to make suggestions on the state budget problems.

    I happen to belong to a parish that has
    one of the best academic private Episcopal schools in the state. Both Catholic and Episcopal schools are subjected to rigorous academic standards and merciless audits. There’s no fraud there. But these non-accredited charter schools run by scam business people are unregulated and not accredited.

  6. Stephen Kohut says

    First off, raising taxes into a recession is exactly what FDR and a Democrat Congress did in the mid-1930’s causing a double dip recession we now call the Great Depression. You never raise taxes in a downturn, it’s economic suicide.

    Secondly, the fix for spending more than you take in is to reduce what you spend. This is what every household and business does in tough times. Only government seems to think it’s the time to spend and borrow more.

    R,

    Is there some part of the word “charter” you don’t get? Charter schools are state chartered and regulated. This is not a unwatched free-for-all. Charter schools receiving less money per student than any “public” school and overall do a better job. Amongst publically funded schools (charter & public) most of the top schools in this state charters. Go look at the ratings on http://www.greatschools.net. My granddaughter has gone to both charter and public schools are we are well aware of the performance differences.

  7. Byron Schlomach says

    Oberserve, the sales tax increase is currently estimated at $918,000,000, down from a full $1 billion in the past due to lackluster sales activity.

    Some might think $1 billion represents a small proportion of our state’s GDP, but it’s on top of what government already consumes. That proportion has been rising lately because government has not shrunk as much as the private economy. It’s the private economy that funds government, not the other way around.

    I think it’s interesting that Phoenix plans to build a multi-million dollar footbridge, paying for it out of its public art budget. They say they can’t use those funds for general purposes, but the reason they can’t is because of an election some years ago. We could have an election now to redirect those funds, but do they propose such a thing? Absolutely not. Clearly, they would rather impoverish core services and raise taxes on food than sacrifice a luxury program like public art that funds bridges. Similar stories could be told at all levels of government, including counties.

    There is fat at every level of government that can and should be cut. Each level should fund its own functions with its own taxes. Unfortunately, there is so much buck passing that has occurred in this state in the past that many state-level taxes are funding local governments. There is urban income tax revenue sharing. The state funds a substantial portion of public education (as constitutionally required). Community college districts have their own property taxes but the state is helping fund them. And, a good bit of fuel tax and vehicle registration monies go to local entities to fund local roads. Perhaps current action at the state level is shifting the balance in the right direction. One thing is certain, counties better have scrubbed their budgets before they use the state as an excuse to raise taxes.

  8. “First off, raising taxes into a recession is exactly what FDR and a Democrat Congress did in the mid-1930’s…”

    It’s also what Reagan did in the 80s. Was it suicide then?

  9. Byron,

    The $918 million estimate was the original estimate. The latest estimate was $680 million.

  10. Voice of Reason says

    Re: Private school tax credits. These are not the parents’ monies. These are tax dollars that are being reallocated. Whatever your point of view, please be accurate. In addition, I’ve worked for a privately-owned, publicly-funded charter school. The owners were making oodles of money, and the education was not better than public schools. There are those that are, and then there are those that are not. Let’s stick with facts, not ideology.

  11. Stephen Kohut says

    Klute,

    Reagans policies are recognized as bringing about one of the longest peacetime expansions in U.S. history. During Reagan’s tenure, income tax rates of the top personal tax bracket dropped from 70% to 28% in 7 years. Real Gross Domestic Product growth recovered strongly after the 1982 recession and produced five straight quarters of growth averaging 8.5%. The GDP grew during Reagan’s administration at an annual rate of 9.4% per year. I’ll take those numbers in a heart beat.

  12. Stephen Kohut says

    Voice of Reason,

    Charter schools cost the taxpayer less than a conventional public school as they do not receive any capital funds. Every kids that switches from a public to a charter school sves all of us money. If the owners make a profit doing it and saving the taxpayer money great!

  13. Stephen,

    “Real Gross Domestic Product growth recovered strongly after the 1982 recession and produced five straight quarters of growth averaging 8.5%.”

    It’s a simple question. Did Ronald Reagan, Ronaldus Magnus, or whatever the hell you people are calling him these days – did he raise taxes during the 1982 recession or not?

  14. Klute,

    they do not like to admit it but he did once in 83 and again in 84. Although many of them were rolling back tax cuts from 81 and 82. So I think a lot of people spin it by saying overall taxes didnt go up during Reagans first terms.

    But there is no way around it, from 81-82 unemployment rose and the recession got worse when Reagan cut taxes and they got better when they went back to the levels when he took office.

  15. Here’s what I know, the same day [Tuesday] that we voted down a school district budget “over-ride” [raising our property taxes in the process], Pima County BofS voted to raise our sewer rates by 40%!!!!!! Beat them over here, got nailed over there…..

  16. ………………
    R. Jorstad-Donaldson Says:
    March 11th, 2010 at 11:33 am
    No “lib blog” linked me over here. I thought maybe there were intelligent open-minded people here trying to make suggestions on the state budget problems.
    ………

    Just busting with intelligent, open-minded people here.
    Are you feeling … out of place?

  17. ……………….

    “But there is no way around it, from 81-82 unemployment rose and the recession got worse when Reagan cut taxes and they got better when they went back to the levels when he took office.”
    ………………

    Hey, I was IN that recession! Came back to the USA slam in the Carter Malaise Recession, landed right here in Arizona at over 11% unemployment and had to find a job.

    Carter also bankrupted a good chunk of the family farms in America when he cancelled all the US grain contracts with the Soviet Union in impotent retaliation against USSR for invading Afghanistan. Farmers had heavily borrowed against signed, sealed 100% guaranteed grain sales to the USSR and were RUINED when Carter pulled the rug out from under them.

    Reagan really inherited a MESS, diplomatically, domestically and economically.

    Amazing to have lived thru to see how fast Reagan turned it around.

  18. Stephen Kohut says

    The Klute and Johnny,

    There is just not enough time or space here to try and give you an education in economic. No matter how you spin it, the recovery was driven by the initial massive tax cuts. Latter on there was some tax revenue neutral code changes. The taxes that went up were SS and Medicare in 1983 to keep those system from failing. Total federal tax rate burden during Reagan dropped no matter how you play with the numbers. For more, try and get educated on economics.

  19. Stephen Kohut,

    “There is just not enough time or space here to try and give you an education in economic.”

    And needless to say, you sure ain’t the man to give it.

    “No matter how you spin it…”

    It’s not spin – it’s a goddamned yes or no question. Did Reagan raise taxes? Yes or no? Simple question. Simple answer. YES.

  20. And NO.

    Reagan Tax cuts pulled America out of the Carter Malaise Recession. Unlike video games, these sorts of things take a little while in real time to manifest themselves.

    Like Obama’s and the Democrat Party-Controlled Congress’s, massive debt-driven spending. Everything still seems sort of normal, even with the job losses, but the effects haven’t hit yet. They will. It won’t be pretty, and it’ll be very very very very hard to stop once the decline begins.

    The Democrats are wrecking the American Nation as we have known it with out of control debt-based spending, “Working as planned.”

  21. wanumba,

    How is it “NO”? Reagan raised taxes during a recession – THAT’S the question at hand. Stephen Kohut can’t accept that, taking a page for your playbook, answering a binary question with a paragraphs long, multiple post screen. Going back to that Orwell book you didn’t read, you can’t shove facts like that down the memory hole simply because they’re inconvienient.

    Just like you can’t change the fact that Obama has lowered taxes as well. In fact, did my taxes last weekend, and my tax burden is LOWER than it was last year.

    “They will. It won’t be pretty, and it’ll be very very very very hard to stop once the decline begins.”

    Okay, Private Hudson. Let me know when they start coming out from under the floorboards.

  22. Klute and Johnny always love to talk history and ignore current events, like the current crap-hole we’re in……

  23. UH huh.
    Let’s try that parsing:
    The question is “Did Reagan cut taxes?”
    It’s a “yes” or “no”.
    Why, “yes.”

    How about this question? Which branch of the government is responsible for spending and taxing?
    Legislative.

    Reagan inherited a split – GOP majority Senate, Dem majority House. He had to work in a BIPARTISAN manner his entire presidency.

    The Democrats today control the executive and legislative branches and are positioning to control the judiciary. Political hat-trick. No checks and balances. In ONE year’s time, they not only blew the debt out the roof, they are continuing to expand it. There will be enormous negative consequences for decades.
    “Working as planned.”

    ……………..

    “Just like you can’t change the fact that Obama has lowered taxes as well. In fact, did my taxes last weekend, and my tax burden is LOWER than it was last year.”
    …………

    Yes, indeed,thanks to Obama, many many people are enjoying significantly lower taxes this year due to loss of their jobs. Next year will be worse.

  24. Stephen Kohut says

    Klute,

    Seems like you need that economics lession. Were taxes cut in some bills, yes. Were taxes raised in some bills, yes. This is not a game of was there a bill Reagan signed that raised taxes. While true, it is meaningless. What is key is the total net effect on fed tax rate and not what an individual bill did.

    Total Effective Fed Tax Rate from CBO on All Households

    1979 22.2 Carter
    1980 22.4 Carter
    1981 20.7 Reagan
    1982 20.4 Reagan
    1983 21.0 Reagan
    1984 20.9 Reagan
    1985 20.9 Reagan
    1986 21.6 Reagan
    1987 21.8 Reagan
    1988 21.5 Reagan

    Effective Fed tax rate under Reagan went down per the CBO. The recovery was driven by the sustained lower tax rates in years 1981 through 1985. In these 6 years the average effective tax rate was reduced by 7.3% from the 1980 Carter rate, we had the greatest post WW II economic growth in our history and revenue to the Treasury increased. Sorry if you don’t like facts and economic truth but that how it is. You’re like the guy who wants to point out the three dandylions in an otherwise great yard. Technically correct but effectively meaningless.

  25. wanumaba

    No, it’s not parsing, it’s basic reading comprehension.

    Twice the question was posed:

    “Did Ronald Reagan, Ronaldus Magnus, or whatever the hell you people are calling him these days – did he raise taxes during the 1982 recession or not?”

    “It’s also what Reagan did in the 80s [raising taxes]? Was it Suicide then?”

    All he had to do was say “Yes, but…” He can’t even acknowledge something that doesn’t fit into his preconcieved narrative.

    “Which branch of the government is responsible for spending and taxing?”

    Could Reagan have vetoed it? Yes. Did he? No. Did his budget that he submitted include tax increases? Yes.

    See, they’re all simple “Yes/No” questions. I guarantee you it won’t sully your hero worship of Reagan to admit that he didn’t believe in things that you so vociferously do – For instance, I think Truman was one of the best presidents this country ever had, yet I can acknowledge he did things unconsitutional, like trying to break the railroad strike of ’52. It helps if you don’t have a black and white, Manichean view of the world.

    “Yes, indeed,thanks to Obama, many many people are enjoying significantly lower taxes this year due to loss of their jobs.”

    Are you employed, wanumba? Did your taxes go up or down this year?

  26. Stephen,

    “Were taxes raised in some bills, yes.”

    Ah, so you can be intellectually honest. Going back to our original point, raising taxes in a recessoin is not always suicide then.

    And going back to your little graph, Reagan actually raised taxes 3 times during his presidency, and the most they ever decreased was 2%, with the final year of the presidency being .9% less than the Carter average. It’d be fun to see the tax rates for their tiers. See who took the brunt of Reagan’s tax increases.

    But .9% difference equals 100% socialism. Got it.

  27. papatodd,

    “Klute and Johnny always love to talk history and ignore current events, like the current crap-hole we’re in……”

    I could turn this around and talk about how you like to avoid history (or at least history that’s inconvient), but I did reference the present in how Obama’s tax cuts are helping the middle class.

    Is your tax burden more or less than last year?

  28. Stephen Kohut says

    Klute,

    I love liberals that can’t do math. Must be their social promotion driven education or intelleectual dishonesty. I suspect its both so here’s a intellectually honest 6th grade math lesson to go with the one in economics.

    Carter’s 1980 rate was 22.4%. Reagans 81~85 rate was 20.8%. That is a 7.3% cut in the effective tax rate. (22.4-20.8)/22.4 = 7.3%

    Carters 1980 rate was 22.4%. Reagans 88 rate was 21.5%. That is a 4% cut in the effective tax rate. (22.4-21.5)/22.4 = 4%

  29. Stephen,

    I’m obviously looking at the difference in rates, not the percentage of decrease, aren’t I?

  30. Stephen Kohut says

    Klute,

    Nothing is obvious about a liberal’s blog except lack of clarity, glaring errors, misstatements of facts, quotations out of context, I didn’t mean it that way, ….

    In your liberal world, if the effective federal tax rate was 1% and it was reduced to 0% you would state that the tax rate was reduced 1%.

    In the world in which real people live we would state there was a 100% reduction in the tax rate.

    Just gotta love the intellectual honesty of liberals which is why my tolerance limit for Rachel Maddow on MSNBC is about 30 seconds when channel surfing.

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