Arizona Gov. Janet Napolitano may have cinched her own reelection later this year by reaching a tax cut deal with the Republican-dominated legislature.
After months of rancorous debate, an agreement was finally sealed last week, greased by a state budget surplus expected to exceed $1 billion -- meaning there were enough goodies to pass out to both sides to make a compromise easy to swallow. Arizona's income tax will fall from 6% to 5.4%, and property taxes will also be cut under the legislative bargain. Economist Arthur Laffer, who helped sell the legislature on the income tax cut, calls the plan "an extension of Fife Symington's pro-growth tax cuts in the 1990s."
Mr. Laffer, the famed supply-sider, was referring to steep tax cuts enacted ten years ago by a former Republican governor. Ms. Napolitano fought this year's income and property tax cuts all the way, but now will certainly tout them on the campaign trail. The tax cuts should help boost her reputation as a "moderate" in a state with a preponderance of GOP voters. She's also hoping the budget deal will offset any Republican anger over her recent veto of an anti-illegal immigration bill. Meanwhile, the GOP's own gubernatorial primary remains a four-way scramble that won't be settled until Sept. 12, less than two months before the November election.
But it's not all good fiscal news from the state capital. Ms. Napolitano insisted on laundry baskets of new spending in exchange for the tax cuts, and that's what she got. There's more money for teacher pay, all-day kindergarten, a high-tech corporate welfare slush fund and other giveaways. All told, spending will rise about 19% in a single year. For weeks, Ms. Napolitano argued that the tax cuts were unaffordable given the state's spending needs. Her case was destroyed by the Arizona Republic's Robert Robb, dean of the state's political reporters, who wrote: "The state budget debate has revealed two things about spenders: (1) their appetite is insatiable; and (2) they cheat in public argumentation." He pointed out that even the Republican budget proposal funneled $1 billion into additional spending, while offering only $500 million in tax cuts.
Special credit for winning the tax-cut fight goes to the Arizona Free Enterprise Club and its president Steve Voeller. The Club single-handedly revised the income tax cuts when even the Chamber of Commerce balked and then steered Republicans away from rebates and other tax gimmicks in favor of growth-stimulating rate reductions. "We think this will make Arizona even more competitive for attracting new jobs and businesses," Mr. Voeller told me yesterday.
