The New Jersey-ization of Arizona

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Before we get into the new taxes coming down from our “conservative” governor and legislature, let’s take a quick detour and talk about Phoenix.

Phoenix in the past year requested and received the maximum available property tax funding.  Then they declared a state of emergency and met in emergency session to obtain yet another 2% increase.

Remember last year (or was it the year before) the voters in the City of Phoenix (since it was an off election, that translates to the 4.7% of city voters who, during the workday, are 2/3  in unions who got to go to the polls on the city dime to vote in favor) voted in favor of a .1% sales tax increase for policemen.  The city was supposed to get an additional 500 policemen.  It got 450.  The other money went to fund pet projects of the mayor and city council.

Now, we are not only paying the higher sales tax, but we are facing approximately 300 police positions that will be cut.  On top of that, the city council is proposing to introduce a NEW 2% sales tax on food.  On top of that, the police union PLEA’s spokesperson, Mark Spencer,  argued that the new sales tax should be (ready for this)  **4%**!  The gall.

Now, the “conservative” governor is talking about “cost shifting”.  Let me explain to you what that means.

Cost Shifting and Property Taxes

Have you noticed that your property taxes (in most cases) are higher now even though your valuations are lower?  Odd, right?  Nope.  That’s the way AZ state law works.  Unless the locality (city, county or secondary taxing district) submits to the county that they want to spend LESS than last year, then even if assessments go down, the tax RATE automatically floats up to adjust!  That’s right, your danged if you do and your danged if you dont.  The ONLY way to lower property taxes in Arizona is if your local government requests to spend LESS than last year.  (When’s THAT gonna happen?!?!?)

Back to “cost shifting”.  Cost shifting simply means that the counties will need to pay for it.  There’s no cut involved.  So, your state taxes will not be cut, but your county taxes (read: property taxes) will go up!

So, in fact, “cost shifting” is just another way to say “tax increase”, but in such a way to give state legislators and the governor political cover so they can say they “didn’t raise taxes” even though they did.

Now, onto the state sales tax.  Using the phrase an opponent to the new city sales tax on food used when he spoke in opposition to the measure in front of the Phoenix City Council today, introducing a  tax increase in the middle of a still-declining economy, is “economic retardation”.

Economic Retardation

There is no magic in economics.  Here is the difference if government spends a dollar they tax you for or if you do.  Taxation does not create money.  (It actually destroys it, but that’s another lecture for another day).

If you are NOT taxed $1, you might spend it or save it.  If you spend it immediately, the private sector’s output is boosted via economic value add.  The $1 you spent, results in approximately $1.12-$1.20 in  economic activity.   If you choose to save it, the private sector’s current output is net zero, but the private sector’s FUTURE OUTPUT is boosted beyond the $1.12-$1.20 depending on how productively your savings institution invests it.

If taxed $1, the government chooses how to spend it.  That choice is POLITICAL, not ECONOMIC.  It other words, the government expenditure is necessarily economically SUBOPTIMAL.  The result of government spending the $1 extra they taxed you for is approximately an $0.87-$0.89 economic value add to the economy.  In other words it is 30%-40% LESS PRODUCTIVE than if you were to retain that $1 and spend it yourself.

This is why the state originally projected that a 1% sales tax would yield $1 billion in revenue.  They have since revised the take down to $840 million.  They will be lucky if they receive 2/3 of their original projection ($667 million) and will most likely net about $600 million.

Does this solve the buget crisis?  No, not even close.  Will it result in lost jobs?  Yes, according to the Goldwater Institute, it will result in approximately 14,000 lost private sector jobs.

Danged if you do.  Danged if you dont.

Why can government operate outside of the constraints that you and I or private industry has?  Can you spend more than you make?  No, or not for long.  Can a company?  No, or not for long.   Government should be subject to the same constraints as you or me or a private company.  When times are tough YOU CUT.

So much for our “conservative” governor and legislature.  They will get their political cover and be able to claim they “didn’t raise taxes” .  But you and I know they did.

Back to property taxes for a moment.  Get ready for your property taxes to double over the next two years as (government bureaucrats like to phrase it), various levels of governmental entities search for “new sources of revenue.”

Keep in mind: There is no such thing as a budget shortfall, there is only overspending.

What if I told you that I had a budget shortfall?  You’d laugh.  I WANT to spend $1.1 million, but only have $100,000.  Therefore, I have a budget shortfall of $1 million.  Is that really a “budget shortfall”?  No, it means I’m insane and I have to cut my spending expectations.  Same thing goes for government.

The New Jersey-ization of Arizona

Arizona is currently being New Jersey-ized.  Unfortunately, this time by “conservatives” who suffer from economic retardation.

Very soon no one will be able to argue “but we have the lowest property taxes in the nation.”   Even if we did have the lowest [insert whatever kind of] tax in the nation, GOOD!  Arizona can serve as the national model of efficiency and business friendliness.  Let’s be a place where manufacturing of solar comes to, but not because of taxpayer subsidies and special deals for buddies on the Arizona Corporation Commission.

Let’s be a model BECAUSE INDIVIDUALS AND COMPANIES CAN PROSPER HERE MORE THAN ANYWHERE ELSE due to LOWER TAXES and LOWER REGULATIONS.

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Final parting shot.  If you want to prevent the New Jersey-ization of Arizona, be sure to check out the good folks at http://www.Prop13Arizona.com who are running a citizens constitutional initiative.  Prop13 Arizona will provide tax cuts, tax caps going forward and force a new school funding formula that dovetails nicely with the recommendations coming out of the Goldwater Institute.


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