Does Arizona Need More Tax Cuts?

Posted on March 12, 2007 | Type: Press Release
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Phoenix -- The annual budget show-down is looming. Governor Napolitano has requested a 12 percent increase in spending over last year. And the Republican-led legislature will soon issue its spending priorities. A new Goldwater Institute report, Dollars and Sense: How Arizona's Spending Choices Affect Our Future, shows why income tax cuts should be part of the budget.

Since 2000 the state budget has increased from $13 to $26 billion, an inflation-adjusted jump of 63 percent. By comparison, the population increased only 24 percent. If spending growth stayed in line with population growth and inflation during that time, each Arizona household would have kept an extra $2,800.

The government is giving itself a ten percent raise each year, that's much more than the average Arizonans gets. It is possible for the legislature and Governor to balance the needs of a growing state and still make tax relief a top priority, says Noah Clarke, author of the report and an economist with the Goldwater Institute.

Mr. Clarke says its fiscally unsound for government spending to grow faster than the personal income of working Arizonans. When government growth increases faster than personal income, the state becomes vulnerable during economic downturns. The more we spend during good economic times, the bigger the deficits during the bad, he says.

Several factors are contributing to the states budget growth. Government formula driven spending on programs like Medicaid and public education, interest payments on outstanding debt, and old-fashioned government waste all add up to hundreds of millions in new spending every year. In addition, new programs also add millions to the budget each year.

Increased spending can also weaken the economy over the long-term. Research shows that a ten percentage point increase in government spending is associated with a one percentage point drop in the economy's growth rate.

To sustain economic growth in Arizona, Mr. Clarke proposes several measures: enforce Arizona's constitutional limit on state debt; adjust Arizona's constitutional limit on legislative appropriations; limit spending to the rate of population growth and inflation; and revisit formula based funding of state programs.

Click here to read Dollars and Sense: How Arizonas Spending Choices Affect Our Future, or contact Jessa Haugebak at (602) 462-5000 or jhaugebak@goldwaterinstitute.org to have a copy mailed to you. The Goldwater Institute is a non-profit research organization developing policy solutions that foster economic and educational freedom.

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