Revenues are pouring into the state treasury. Elections are on the horizon. Some legislators, especially in the Republican ranks, add those two facts together and mistakenly come up with the need for permanent tax cuts.
They want to make permanent tax cuts based on a one-time surge in revenues. And not just one round of cuts. Republican leaders are looking at a multi-year plan. One version would end up chopping more than $800 million from Arizona's annual revenues.
This is just bad math.
Unless Arizona stops adding up to 200,000 people a year. Unless we can hire more teachers, highway patrol officers and prison guards for nothing. Unless highway construction materials are suddenly free.
Our state has just too much growth and too many pressing needs to lock in tax cuts.
With a projected surplus of $1.1 billion in fiscal 2007, lawmakers aren't going to give up the drive to put something back into taxpayers' wallets. And there's a right way to do it. Here's how to spell taxpayer relief: R-E-B-A-T-E.
Handing out checks makes more sense than a permanent hit to state revenues for a long list of reasons. They include:
Tax revenues are volatile. Only three years ago, the budget balance was exactly the opposite. Arizona was looking at $1 billion in red ink. We shouldn't base permanent changes on short-term swings in revenue.
The economy is booming under the current tax structure. Arizona was second only to Nevada in job growth in the past year. There's no sign that our taxes are stopping businesses from moving or expanding here. What will hurt our economy is an erosion in the state's ability to fund basic services. A business-friendly state must be able to invest in an efficient transportation system and top-notch educational institutions.
Arizona's tax burden is below the national average. Nobody enjoys paying taxes. But the bite is smaller here. We rank 39th in per capita state and local personal income taxes. Property taxes are 16 percent below the U.S. average.
Tax cuts that are negligible for the average person can take big chunks out of state revenues. For a person making $50,000 a year, the proposed 5 percent cut in income taxes would come to $1.12 a week. If there were two more 5 percent reductions, as proposed, the tax savings would be a bit more than $3 a week. But state revenues would be $200 million lower the first year, plunging to $600 million by the third year. Does the average taxpayer want a few dollars more a week, about enough for a gallon of gas? Or money available for jobs like building freeways and staffing prisons?
Chopping off income for an ongoing responsibility is myopic. The county equalization rate, a property tax that's been in the crosshairs of some business interests for years, is a prime target for reduction or elimination. But that's part of our basic education spending. If the counties stop collecting it, the state must fill the gap out of its overall revenues - reducing the dollars available for other uses. This particular tax break is a plum for large business properties. Someone with a house worth $300,000 and making monthly payments of $2,000 would save a paltry $3.50 a month.
When the state slices too deeply, local governments bleed. Arizona cities and towns are prohibited from levying their own income taxes, so they get a share of the state's collections. Proposals for a 15 percent income tax cut would reduce shared revenues by $180 million in the three-year phase-in period. That means municipalities would have to reduce services or raise their own taxes. For counties, the big risk is that the Legislature will put the squeeze on them when the economy turns soft. Last time, counties were forced to contribute funds and absorb extra costs for basic service like courts. For Maricopa County, the tab was $124 million.
This is not the comprehensive tax reform that would benefit Arizona. Our tax system could be simpler and better balanced. But to improve the alignment, legislators must make adjustments both up and down. The tax-cutters are looking at just one side of the equation. It's like thinking a teeter-totter will work with all the weight on one end.
Should Arizona taxpayers get some of the current windfall? You bet.
Let's hear it for rebates.