As one of his last actions as speaker of the House, Jim Weiers announced that he would appoint a blue-ribbon committee to make recommendations about ways to make state revenues less susceptible to such large cyclical swings.
The commission apparently isn't going to get off the ground. But this is but the latest step in a long and futile odyssey to find a new tax system for Arizona that would produce more stable revenues.
After the last budget bust, Gov. Janet Napolitano appointed such a blue-ribbon commission. It worked very hard and produced some very useful research. It made a variety of recommendations.
Napolitano had vowed that she would take the recommendations of the commission seriously, that this would not be just another report that gathered dust on the shelf.
In any event, she ignored the recommendations, and there the report sits on the shelf, gathering dust alongside a comparably comprehensive report produced about a decade earlier.
Here's the harsh reality. There are tax reforms that would be more conducive to economic growth. There are tax changes that would produce more money for the state to spend.
However, there is no tax code that would make state revenues less susceptible to large cyclical swings.
Some say that the state is too dependent on retail-sales taxes, which are too volatile. Certainly, a decline in sales-tax collections has contributed significantly to the state's budget shortfall. Sales-tax collections last year were down 3.5 percent. They are down 8 percent this year.
However, over time, the retail-sales tax has been the state's most steady source of revenue, by far. According to a 10-year analysis done by the Legislature's budget staff, sale-tax collections have generally tracked changes in the state's aggregate personal income.
Income taxes, in contrast, are much more subject to cyclical changes. They increase faster than personal income during good times and decrease more rapidly during downturns.
Some, of course, blame income-tax cuts for the current shortfall, arguing that they have made the state more dependent on sales taxes and robbed the state of needed revenue.
Well, in 1993, when the era of tax-cutting began in Arizona, personal-income taxes supplied 36.3 percent of the state's tax revenue. Last year, it actually supplied a greater share, 37.6 percent.
Let's assume no growth effects from tax-cutting. If the income-tax cuts had not been enacted, the state would be spending more money and would be more dependent on personal income tax revenues, which are more volatile than sales taxes. In other words, the state would have a larger budget deficit on a larger spending base.
Sales-tax reliance did go up during this period, from 43 percent in 1993 to 48 percent in 2008. That's because the state got out of the property-tax business, which supplied ab
out 5 percent of state tax revenue in 1993. Some believe this was a mistake, since it turned Arizona's steady three-legged revenue stool (sales, income and property) into a wobbly two-legged stool (sales and income).
This, in the first place, relies on historical amnesia. The 1980s, when state government had the supposedly steady three-legged stool, was a period of highly uncertain and volatile state revenues.
Moreover, what the state has given in property-tax relief has been more than taken away by local governments. According to figures provided by the Arizona Tax Research Association, statewide property-tax collections have been increasing over 7 percent a year over the past four years. Filling the state's $1.2 billion deficit would require an 18 percent increase in the overall property-tax bill. That's no more politically palatable than increases in other taxes.
Nor, as we have learned painfully in Arizona, are property values immune to economic stress.
Some believe that the sale tax is too narrow, that it should be broaden to include services. This may have some benefits, but reducing volatility wouldn't be one of them. I know of no research on point, but I doubt that spending on services holds up materially better than spending on retail goods during a downturn.
This is not to say that tax reform cannot be useful. But one of its fruits won't be greater stability in government revenues. Regardless of the tax mix, government revenues will rise and fall with the economy. There are no countercyclical tax sources.