Both sides duel with statistics on sales tax

Arizona Daily Star
May 15, 2010
Rhonda Bodfield

If you believe the signs by the Pima Association of Taxpayers urging voters to nix the temporary sales-tax measure on Tuesday's ballot, Arizona citizens are already "Taxed to the Max."

Hold on there, say proponents of Proposition 100, citing national statistics saying Arizona has a fairly low tax burden.

Each side has statistics to back its claim. Which is correct is more a matter of perception than absolute fact.

But with the job market and consumer confidence still sputtering, how average Arizona voters perceive our tax burden is a key factor in the fight over the 1-cent sales-tax hike that will be decided on May 18.

The U.S. Census Bureau ranked Arizona 20th in the nation for the $11 billion it collected in state taxes and fees in 2009.

For Tom Jenney, director of the Arizona chapter of Americans for Prosperity, that puts the state in the top half of states for revenues collected, even though it has more poor people and lower household incomes than the national average. "The short answer is no, we aren't a low-tax state," he said.

On the other side, Proposition 100 advocates hang their hats on an analysis by the nonpartisan Tax Foundation, which ranks Arizona 41st in the nation, based on how much taxpayers pay as a percentage of income.

According to that analysis, Arizonans in 2008 spent approximately 8.5 percent of their income on taxes - the national average is 9.7 percent. The highest, New Jersey, comes in at 11.8 percent.

"I'm not sure people realize our tax burden is so low," said Ann-Eve Pedersen, president of the Arizona Education Network. "We've been steadily lowering taxes over the years."

According to the Joint Legislative Budget Committee, Arizona has dropped taxes 16 of the previous 18 years. Some of them are small tax code code tweaks to be sure, and yes, state lawmakers reinstated a statewide property tax for education this year, after a moratorium on its collection expired.

But over the years, Arizona has offered a host of tax changes, from cutting state income taxes, phasing down the assessment ratio for business, offering school tuition tax credits and building in credits for renewable energy.

Kevin McCarthy, president of the fiscally conservative Arizona Tax Research Association, is critical of the Tax Foundation's numbers painting Arizona as a low tax state. He said it makes judgments on redistributing tax collections that don't fly with others in the industry.

A more accurate gauge, he said, are census numbers, which were recently adjusted to account for the fact that for years analysts ignored the proceeds from both the last voter-approved sales-tax increase for education in 2000 and the Maricopa County road tax.

The corrected numbers for 2007, the most recent data available, rank Arizona 33rd in total taxes per capita and 22nd in taxes paid per $1,000 of income.

"On either measure, we rank in the middle of overall state and local taxes. I would characterize us as being an average-taxed state," said McCarthy, who is endorsing the sales-tax proposal.

When it comes to sales taxes, which are in play with Proposition 100, Arizona is almost always in the top 10. The 2007 census figures put Arizona at 6th. On the other hand, Arizonans are getting a comparatively good deal on income taxes, coming in 40th.

The way McCarthy sees it, the tax cuts in previous years did not lead to the problem. If legislators hadn't cut taxes, he said, they would have spent more and now the hole would be bigger. "It's impossible to argue that we are where we are because of tax cuts. There's no more credibility to the argument that we are where we are because of spending alone, because it ignores that we've seen a 37 percent drop in revenue. It's more complicated than both of those arguments."

Advocates say tax cuts enacted during flush times, which left the budget drained when the economy flopped, are partly to blame for the current mess - a situation that would be corrected somewhat with this increase.

Dennis Hoffman, an economist at Arizona State University, agrees with McCarthy about Arizona's being a roughly average tax state.

But the more useful comparison, he believes, is to measure the burden today against historical tax burdens.

"You will indisputably find that Arizonans today," he said, are bearing lower burdens than at any time in the recent past.

By his analysis, individual taxpayers contributed about $50 in general fund revenues out of each $1,000 earned in the mid-1990s. That number is now hovering at $30. Part of that is due to the economy, but more of it is due to tax cut decisions, he said.

He's disheartened, he said, about the prospects for a future fix.

"If you hear from one party that we have to keep taxes permanently low to grow the economy, and you hear from the other that the only way is to put the burden on the rich and the corporations, it may be unsolvable."

Arizona also isn't alone in asking for more taxes.

According to the National Association of State Budget Officers, 29 states enacted tax and fee increases, with the largest hit coming on personal income taxes. Among the nine states that dropped taxes, the biggest cuts went to corporate income taxes