To Tax or Not to Tax

That, in fact, is the question Arizona voters will be asked 18 May in a special election called at a cost of roughly $11mn.

Early voting has already begun on the proposed constitutional change to increase the state gross receipts tax rate (essentially a sales tax) from 5.6% to 6.6% for three years.

Arizona needs to do something to deal with its $6.3bn debt and projected deficit of $3-4bn (depending on who you ask) for 2010 . Governor Brewer and the Legislature have stated that there’s just nothing left to cut other than the “core government functions”—public safety and education.

But Proposition 100 is based on several false assumptions, and I urge you to oppose the tax increase.

Understating the Increase

Proponents like to label this a “1¢” change in the state sales tax.  Technically true, but an increase of one percentage point in the state’s base tax rate means an 18% jump in the amount of state sales tax Arizonans pay. Which of your other bills would you be willing to increase by one-fifth?  And do you think this will be accompanied by an 18% increase in the efficiency and quality of our government services?

Also note that when combined with existing county and municipal sales taxes, the effective sales tax rate for much of Arizona would exceed 10%.

Overstating the Benefits

The Governor’s own budget statement for fiscal years 2010-2011 estimates increased annual revenues of $1bn from the tax hike, but if you dig a little deeper, that is based on the assumption that Arizonans’ spending habits will not be affected by increased costs—an assumption I think you’ll find ridiculous prima facie.

However, let’s assume for a moment that Gov. Brewer’s assumptions are correct, and our denizens keep spending happily away through this recession and just absorb an 18% jump in their state sales tax bills—the Governor also says, just a few paragraphs earlier in the same statement, that the estimated shortfall for fiscal year 2011 is $3,200,000,000.  Even in the government’s lah-lah land, best-case scenario, that leaves us with a gaping budget hole of more than two billion dollars.

Exaggerating the Pain

azbudget2010Claiming there’s nothing to cut other than public safety is patently false. 43% of our state monies are spent on providing healthcare via programs like the Arizona Health Care Cost Containment System (Medicaid—an absurd amount), 35% on education (despite expenditures’ disconnection from performance), 2% on transportation, and 16% on things “other” than such “core functions” (why does our government spend $4.6bn on non-essential functions?). Only 4% of our expenditures are on law enforcement (see chart).

Breaching the Public’s Trust

Raising taxes in a recession? Really? And we’re supposed to trust our leaders that it is necessary and will be spent wisely? Just a few short years ago, Arizona was posting record-breaking revenues. Did we establish an appropriate rainy-day fund? Did we invest in critical infrastructure for our rapidly growing population? No, we out-matched our record revenues with record expansions of entitlements, including in the AHCCCS. And despite strict, constitutional debt limits of just $350,000, our legislators have flagrantly and consistently trampled upon the law.

If we don’t say no now, it will happen again. Our elected officials can do more with less—it’s time to demand it of them.

6 thoughts on “To Tax or Not to Tax”

  1. We are already seeing some promising creativity with our state parks, whose budgets have been slashed to nearly zero—our government may already be finding ways to do better with less. Some state parks generate a significant amount of revenue for the communities in which they are located, such as Lake Havasu City, and public-private partnerships look like a great option.

    Some of our lesser-frequented parks may be better managed as wilderness areas—like the distinction between the US Park Service’s actively staffed and managed Grand Canyon National Park and the more remote areas of, say, the Superstition Wilderness, where you’ll almost never actually come across a US Forest Service employee and where a lot of maintenance is handled by volunteers and donations.

    Even with regard to law enforcement, many communities nationwide are finding ways to make do with less money. The last two decades have seen huge budget and staff increases in pursuit of crime prevention models such as community policing—without a doubt, such programs have had results, but at a significant cost. In many cities, police departments are refocusing on emergency response.

    (Not an ideal situation, perhaps, but certainly workable. It is worth noting that a free society is singularly poorly equipped for crime prevention—We could place a cop on every street corner, but they couldn’t actually do anything until somebody had actually committed a crime. Part of the cost of living in a free society is taking a reasonable degree of responsibility for your own personal safety—one of the reasons our framers recognized the importance of the right to bear arms.)

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