Robert
Robb
The Arizona Republic
May. 28, 2006
From the political notebook:
• Now, that's more like it.
The Arizona Senate has finally crafted a tax cut that fits the circumstance. The circumstance is this: The state is drowning in dough.
State tax collections are running at about 17 percent more than last year. That follows a 20 percent increase in tax collections last year, and a 12 percent increase the year before.
Nor is it true, as commonly asserted, that this represents a one-time construction and housing burst.
Retail sales taxes excluding contracting are up 15 percent. Withholding on wage income is up 10 percent.
After fully funding the "rainy day fund" and more than a 10 percent increase in spending, the state will have a surplus in excess of $750 million this year.
The Senate passed a 10 percent cut in personal income tax rates and a 4 percent cut in overall state and local property taxes. So, this is hardly slash-and-burn stuff.
The cuts are estimated to "cost" the state more than $500 million a year in revenue. But there is an iron rule about such estimates: Tax cuts will not reduce revenues as much as projected, and tax increases will not raise them as much as projected.
• If Gov. Janet Napolitano won't agree to the tax cut, Senate leaders threaten to take it to the ballot. That would be a strategic mistake.
The belief is that the threat will make Napolitano more pliable in tax-cut negotiations, since she is thought to not want to have to run for re-election with a big tax cut on the ballot.
That's probably true. But the risks to a tax-cutting agenda from such a ballot measure is greater than the possible gains.
Tax cuts always do better at the ballot box than in public opinion polls, so the polls indicating public opposition to a tax cut can be somewhat discounted.
Nevertheless, a referendum is always risky business. And a defeat would likely put tax-cutting off the public agenda for many years.
Napolitano is likely to get re-elected. And she's clearly no fan of tax cuts.
Nevertheless, she accepted a sizable corporate property and income tax reduction last year. And in her new budget proposal released last week, she included a 5 percent cut on the personal income tax rate, something everyone thought she would never agree to just a few months ago.
So, while Napolitano does not favor tax cuts, she's also highly reluctant to get caught publicly opposing them.
Moreover, the odds would favor a Republican replacement for Napolitano in 2010. And the odds are that the Republican nominee will be a tax-cutter.
Tax-cutters would be better off plugging away in the legislative process, rather than risking the agenda on a single public vote.
If a public vote is going to be risked, it should be for something really big, such as a phase-out of the income tax altogether.
• Although the legislative leadership budget increases state spending next year by a breath-taking 19 percent, Napolitano still is trying to squeeze out yet more spending.
In her new proposal, she reprised a favored tactic: debt. Napolitano proposes to debt-finance $63 million in capital projects the leadership budget pays for with cash.
Of course, debt-financing increases overall taxpayers' costs. However, it moves all but the debt service expenses off-budget.
That means that, given the way the accounting for the state's General Fund works, she can actually propose more spending while appearing to spend less.
The state should move to more of a use-of-funds accounting system. Borrowed proceeds would appear as revenue, and spending from such proceeds would appear as expenditures.
Such a system would eliminate the Rumpelstiltskin effect in state budgeting: making expenses disappear by debt-financing them.
• While I'm not opposed to debt-financing capital projects if they are fairly accounted for in budgets, Napolitano's proposal comes during what appears to be an explosion in state and local government debt in Arizona.
According to the Arizona Tax Research Association, state and local government debt here has increased more than 40 percent since 2000.
There's also a surge going on in non-debt-financed state and local government spending.
While things seem rosy in Arizona these days, the cost of government is increasing far more rapidly than incomes or the economy. That cannot be sustained.
• Now, that's more like it.
The Arizona Senate has finally crafted a tax cut that fits the circumstance. The circumstance is this: The state is drowning in dough.
State tax collections are running at about 17 percent more than last year. That follows a 20 percent increase in tax collections last year, and a 12 percent increase the year before.
Nor is it true, as commonly asserted, that this represents a one-time construction and housing burst.
Retail sales taxes excluding contracting are up 15 percent. Withholding on wage income is up 10 percent.
After fully funding the "rainy day fund" and more than a 10 percent increase in spending, the state will have a surplus in excess of $750 million this year.
The Senate passed a 10 percent cut in personal income tax rates and a 4 percent cut in overall state and local property taxes. So, this is hardly slash-and-burn stuff.
The cuts are estimated to "cost" the state more than $500 million a year in revenue. But there is an iron rule about such estimates: Tax cuts will not reduce revenues as much as projected, and tax increases will not raise them as much as projected.
• If Gov. Janet Napolitano won't agree to the tax cut, Senate leaders threaten to take it to the ballot. That would be a strategic mistake.
The belief is that the threat will make Napolitano more pliable in tax-cut negotiations, since she is thought to not want to have to run for re-election with a big tax cut on the ballot.
That's probably true. But the risks to a tax-cutting agenda from such a ballot measure is greater than the possible gains.
Tax cuts always do better at the ballot box than in public opinion polls, so the polls indicating public opposition to a tax cut can be somewhat discounted.
Nevertheless, a referendum is always risky business. And a defeat would likely put tax-cutting off the public agenda for many years.
Napolitano is likely to get re-elected. And she's clearly no fan of tax cuts.
Nevertheless, she accepted a sizable corporate property and income tax reduction last year. And in her new budget proposal released last week, she included a 5 percent cut on the personal income tax rate, something everyone thought she would never agree to just a few months ago.
So, while Napolitano does not favor tax cuts, she's also highly reluctant to get caught publicly opposing them.
Moreover, the odds would favor a Republican replacement for Napolitano in 2010. And the odds are that the Republican nominee will be a tax-cutter.
Tax-cutters would be better off plugging away in the legislative process, rather than risking the agenda on a single public vote.
If a public vote is going to be risked, it should be for something really big, such as a phase-out of the income tax altogether.
• Although the legislative leadership budget increases state spending next year by a breath-taking 19 percent, Napolitano still is trying to squeeze out yet more spending.
In her new proposal, she reprised a favored tactic: debt. Napolitano proposes to debt-finance $63 million in capital projects the leadership budget pays for with cash.
Of course, debt-financing increases overall taxpayers' costs. However, it moves all but the debt service expenses off-budget.
That means that, given the way the accounting for the state's General Fund works, she can actually propose more spending while appearing to spend less.
The state should move to more of a use-of-funds accounting system. Borrowed proceeds would appear as revenue, and spending from such proceeds would appear as expenditures.
Such a system would eliminate the Rumpelstiltskin effect in state budgeting: making expenses disappear by debt-financing them.
• While I'm not opposed to debt-financing capital projects if they are fairly accounted for in budgets, Napolitano's proposal comes during what appears to be an explosion in state and local government debt in Arizona.
According to the Arizona Tax Research Association, state and local government debt here has increased more than 40 percent since 2000.
There's also a surge going on in non-debt-financed state and local government spending.
While things seem rosy in Arizona these days, the cost of government is increasing far more rapidly than incomes or the economy. That cannot be sustained.