Proposition 100 supporters are touting estimates from economists at the University of Arizona and Arizona State University. They claim an 18 percent increase in the state’s sales tax would cost fewer jobs than the number of jobs that otherwise may be lost due to reductions in the government spending.
Let’s think about this. If the state economists are right, it means the more we tax and let government spend, the more jobs we’ll have. Well, let me get on that bandwagon! Let’s not stop at an 18 percent tax hike; let’s double the tax rate and government spending along with it. We’d get a whole lot more economic growth.
The absurdity of this tortured economic reasoning, based on a popular Depression-era theory, can be illustrated by looking at a photo of earth taken at night. If the state economists were right, North Korea would be more than a big, dark blot. North Korea and Cuba would outshine the world with their prosperity.
Last year the Goldwater Institute asked the independent Beacon Hill Institute at Suffolk University to estimate the economic impact if the state raised the sales tax. They found the state will lose 14,000 private sector jobs.
So which should you believe, the models of the university economists or the Beacon Hill model?
Beacon Hill’s model is consistent with real world evidence, like North Korea and Cuba. New research based on real-world experience in the United States by eminent Harvard University economist Robert Barro indicates that reducing government spending does not hurt the economy but tax increases do. Current research highlighted by the San Francisco Federal Reserve Bank comes to a similar conclusion.
Arizonans have a choice. They can choose to believe Beacon Hill’s economic estimates, which is consistent with real world evidence, or they can choose to believe a prediction based on a theory that evidence contradicts. Modern empirical results make it clear that a tax increase will damage our economic growth.
Dr. Byron Schlomach is an economist and the director of the Center for Economic Prosperity at the Goldwater Institute.
Federal Reserve Bank of San Francisco: Economic Research and Data
Atlantic Magazine: An interview with Robert Barro
GlobalSecurity.org: North Korea is Dark