Friday, March 14, 2008

Goldwater Institute: When a Latte's a Lot

Venti or Grande, a Tax is a Tax

By Byron Schlomach, Ph.D.

When engineers need to know the precise strength of a structure, they test it by adding tiny amounts of weight to an actual example or a model. Eventually, the structure fails. That last gram of weight--the one that makes the difference between an intact structure and a pile of rubble--is pretty significant, at least to the structure.

Thus, it's always with some amusement when I read of how "little" government programs and taxes cost us. One of the selling points on Phoenix's recent sales tax increase was that it represented just two more cents on a ten dollar purchase.

Similarly, Governor Napolitano has said that the County Equalization Tax, which some would like to permanently repeal, is worth only "two lattes a month" to the owner of a $250,000 house. The County Equalization Tax is the 43-cent state property tax imposed on all property owners to equalize funding across school districts. It was suspended temporarily in 2006, with the state using general tax funds to make up the difference. Its reinstatement in 2010 will cost Arizona property owners $225 million a year.

To the latte-sipping crowd, this tax might not sound like much. But it's more than a case of Dr. Pepper at Sam's Club. For commercial properties that are taxed at twice the rate of residential property, it's a latte a day tax, or $800 a year on a million dollar property.

As with that last gram of weight that causes a structure to fail, this "little" tax could make the difference between ultimate success and failure for a small business. A latte here and a latte there -- pretty soon you're talking about real money. Jobs, too.

Byron Schlomach is the director of the center for economic prosperity at the Goldwater Institute.

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