Lack of revenue didn't cause
state budget crisis
 
 
By Bob Schuster
East Valley Tribune
Sunday, Aug. 11, 2002
 

Beware of candidates for state Legislature who say they want to close tax “loopholes.” They are perpetuating two myths:
• That somehow this wouldn't be a tax increase.
• That state government doesn't have enough money to deliver essential services.
As I participate in Tribune candidate forums around the East Valley, the issue of tax loopholes and exemptions is a prominent theme among Democrats, but even some Republicans are mentioning it as a concern. And that concern is often rooted in “fairness.”

Why, for instance, should someone pay sales tax on fleeflea powder for their pet, but not pay sales tax when they get their animal groomed? It's because Arizona's sales-tax code exempts services — as well as food and some other commodities.
Eliminate these exemptions that “favor” certain businesses, say some politicians, and Arizona's “deficit” would be erased. True enough, but it's dishonest to claim that favored businesses have been getting a free ride, because all sales taxes — indeed, all taxes — ultimately are paid by consumers.

For every sales-tax “loophole” that's closed, more money will be removed from the pockets of Arizona consumers already hurt by the recession and placed in government coffers. Or they'll buy less, which will further hurt the economy and prolong the recovery.
There is, however, legitimate debate over whether the Legislature should expand the sales-tax base to include services while also reducing the overall rate so the state's take is revenue-neutral. Arizonans pay among the highest sales tax rates in the nation on goods, which prompts some people to go out-of-state to purchase big-ticket items such as vehicles.

So there's some sense to lowering the overall rate while removing exemptions. But fiscal conservatives rightly fear that opening that debate would lead to horse-trading that would end up raising taxes to cut the “deficit” to preserve essential services.
This brings us to the second myth: That state revenues have been lagging behind population growth and inflation. That simply is not true. Not by a long shot.
An analysis of state and local tax collections over the past two decades by the Arizona Tax Research Association shows that per-capita, inflation-adjusted revenues increased by more than 50 percent from 1980 to 2000. The increase was a whopping 31 percent from 1980 to ’90, and just under 16 percent from ’90 to 2000.

Has state government somehow missed out on this bonanza? Hardly. ATRA's analysis shows the inflation-adjusted, per-capita state income tax bite has more than doubled over the past 20 years — from $117 to $241.

Per-capital adjusted sales taxes paid to state and local governments, meanwhile, have risen to $555 from $362 — or 53 percent. The property-tax bite, meanwhile, has grown by 35 percent.

So how could state government be struggling under a “deficit”? Because there were no constraints on government growth during prosperous years — including the ’90s when much of that “prosperity” rested on the dot-com bubble.

As state revenues dip, all the services that were added — along with the state workers hired to deliver them — are suddenly considered indispensable. While downsizing in the private sector is painful but possible, in the public sector it is highly political and virtually impossible. The budget-cutters are accused of everything from denying food to starving children to throwing the frail elderly into the streets.
Getting ourselves out of this mess won't be easy, but it's possible. First, we need to elect true fiscal conservatives who shun the loophole argument as the fraud it is. Especially with the hefty sales-tax increase approved by voters two years ago for education, there's enough money for basic services.

Second, we should encourage our representatives to put a taxpayers protection measure on the 2004 ballot patterned after Colorado's, which limits government spending increases to population growth and inflation. That prevents the extravagant government growth during flush times that invariably becomes “indispensable” during economic downturns.

And if our elected representatives don't have the gumption to protect taxpayers, then citizens should take matters into their own hands through the initiative process.
ITC Franklin Gothic Book
 
Bob Schuster can be reached at:
Voice, (480) 898-6507; fax, (480) 898-6362;
mail, P.O. Box 1547, Mesa, AZ 85211;
e-mail, bschuster@aztrib.com on the Internet.