Consumption-Based Tax Best Way to Enhance Savings, Investment, and Growth
PHOENIX-In a report released today by the Goldwater Institute, economist Stephen Slivinski offers Arizona policymakers three different consumption-based tax reforms. "Arizona's current tax system punishes savings and investment," Slivinski says. "A consumption-based tax system would be an enormous boon to savings, investment, and growth." The report appears as the Governor's Citizens Finance Review Commission begins deliberations over how to reform the state's tax system.
The object of tax reform, Slivinski argues, should be to decrease the tax burden on Arizonans. "We should focus on making Arizona's tax code simple, fair, neutral, and regionally competitive," Slivinski says. According to his projections, a 3-percent flat tax could save taxpayers $3 billion, a 3-percent consumed income tax $3.3 billion, and a 3-percent retail sales tax at least $2.4 billion. If phased in over a five- to ten-year period, those static losses to state government revenue could be offset by increased economic growth and fiscal restraint.
Short of comprehensive tax reform, Slivinski offers policymakers a menu of five smaller reforms: restoring inflation indexing of the personal income tax code, conforming the state tax code to new federal depreciation rules, equalizing personal and corporate income tax rates at 5.04 percent, lowering income tax rates to a regionally competitive level, and eliminating the corporate income tax. Those reforms would save Arizona taxpayers from $50 million to $266 million the first year.
Slivinski gives a mixed review to the reform principles guiding the governor's commission. Some of the commission's principles are laudable, Slivinski says, "but some are based on the notion that the current system collects too little revenue." The study shows that the sales tax, which critics claim is riddled with loopholes, is actually quite robust, growing apace with personal income growth, and the personal income tax actually grows faster than personal income growth in the boom periods. Slivinski has been invited to testify before the commission June 12.
The study, "The Right Cure for What Ails Us: A Prescription for Comprehensive Tax Reform," is available here.