GOP governor candidates debate ending Arizona income tax

Arizona Republic
Saturday, June 7, 2014
Yvonne Wingett Sanchez and Alia Beard Rau

Three candidates vying to become Arizona's next governor said Friday that, if elected, they would do away with state income taxes, the source of nearly half of the $9 billion that flows into state coffers each year.

The remarks at a gubernatorial forum hosted by the Arizona We Want Institute revealed contrasting plans for the state's fiscal future.

Seven Republicans are seeking their party's nomination: Secretary of State Ken Bennett, state Treasurer Doug Ducey, former Go Daddy executive Christine Jones, former Mesa Mayor Scott Smith, former California Rep. Frank Riggs, state Sen. Al Melvin and former Maricopa County Attorney Andrew Thomas.

Thomas did not attend the forum.

The GOP nominee will face Democrat Fred DuVal.

The 2½-hour event in downtown Phoenix — moderated by 12 News anchor and reporter Brahm Resnik —turned serious when Bennett, Melvin and Ducey said they would reduce or entirely eliminate personal and corporate income taxes.

Ninety-two percent of the state's general-fund revenue for next fiscal year is forecast to be generated by three taxes: the sales tax, the individual income tax and the corporate income tax.

The Joint Legislative Budget Committee projects income taxes will account for about $4.3 billion in fiscal 2015, or 47 percent of the state's anticipated general-fund revenue of about $9.3 billion.

Individual income taxes range from 2.5 to 4.5 percent. The governor and the Legislature have passed a gradual reduction in corporate income taxes, with the rate falling to 6.5 percent for the 2014 tax year and 6 percent for the 2015 year.

Resnik pressed Bennett, Melvin and Ducey on how they would make up for that lost revenue — nearly equal to the combined budgets of the Arizona Department of Education and the Department of Public Safety.

Generally, the three Republican candidates promised to implement policies that would quickly grow Arizona's economy, to generate new revenue by expanding the sales tax to goods and services that are currently exempt and to save money by finding efficiencies in government operations.

In one contentious exchange, Resnik asked Ducey whether it would be fair to adopt individual income-tax cuts that primarily would benefit the wealthy. Department of Revenue data show that such a move would benefit households that earn $100,000 to $200,000 more than middle-income Arizonans, Resnik said. "This looks like a tax cut that favors the wealthy, doesn't it?" Resnik asked.

Ducey repeatedly deflected and didn't answer.

Jones and Smith said they oppose eliminating income taxes, saying their opponents' proposals were unrealistic.

"A lot of campaign promises would have a very difficult time. They're great for a campaign," Smith said, drawing laughter.

Economic experts agreed.
Dennis Hoffman, director of the L. William Seidman Research Institute at Arizona State University's W.P. Carey School of Business, said debate over the future of the state's income tax is "healthy." But, he said, eliminating billions of dollars from the budget would be a significant challenge.

Doing so, Hoffman said, would require the state to grow the economy quickly — which he called improbable — and seek alternative revenue streams, such as expanding the sales- tax base.

"Any kind of tax increase is a challenge," he said, "but, nonetheless, I think one could identify upwards of $1 billion in basic (sales tax) expansion, and if you add a penny to the sales-tax rate, maybe there's another $1 billion, roughly. You can get halfway there, but it'd be painful."

Stephen Slivinski, a senior economist at the conservative Goldwater Institute think tank, said it is possible to cut income taxes and compensate for it by raising taxes elsewhere or cutting spending and services.

"What the candidates need to clarify is whether they want to get rid of income tax just for the sake of getting rid of the income tax, or if the goal is to try to transition the state to a more, broader consumption tax base," he said. "These aren't things that are really sexy to talk about during a campaign, but they are nitty-gritty detailed policy questions that they'll need to deal with if indeed they want to make this work."

For example, he said, the state might expand the sales tax to services not currently taxed — legal services, haircuts, some pet services and dry cleaning — to make up for lost revenue from phased-out or eliminated income taxes.

Except for Bennett, the candidates have mostly avoided details on how they would make up the lost revenue, Slivinski said. Bennett proposes to expand the sales-tax base and create a new consumption tax base.

"No tax cut is going to pay for itself," Slivinski said. "I think that's kind of overblown when people said that. But I do think you can have some kind of salutary growth pattern … if you cut taxes the right way. But you're still going to have to make up the (lost) revenue somewhere along the way."

Kevin McCarthy, president of the Arizona Tax Research Association, said Arizona's personal and corporate income taxes are already among the lowest in the nation.

"We've never viewed the personal income tax as a major impediment to business location and job growth here," he said.

The corporate property tax, he said, is another matter. Brewer and the Legislature have passed corporate property-tax reductions. But McCarthy said they will still be at about 18 percent, leaving Arizona among the top 15 states. "Potential businesses continue to point to that," he said. "If there's money available for tax cuts, I would think that would be the first thing a governor would do."

While the forum dealt with high-dollar policy, it was also punctuated by lighthearted exchanges. Resnik challenged Bennett to state the number of constitutional amendments (which he did: 27), and Jones, while taking the stage, looked at her palm in disgust after shaking Riggs' hand.

There were uncomfortable moments, too. Riggs chastised the media for using the term "Latinos" instead of "Hispanic Americans."

And Resnik asked Jones why she has sought Maricopa County Sheriff Joe Arpaio's support when a federal judge found racially profiling by his office.

She defended herself, saying Arpaio should be commended for lowering crime and rescuing "animals from certain death. You don't have to like his schtick."

Republic reporter Mary Jo Pitzl contributed to this article.