Tuesday, December 30, 2008

AFP: Arizona must batten down the spending hatches, cut taxes

Dear Arizona Taxpayer,

Be sure to click on the link below and read AFP Arizona’s latest op-ed, which was published in today’s Arizona Daily Star.

Contrary to the title the editors gave the piece, we did not suggest cutting tax rates as a means of dealing with the Fiscal Year 2009 or FY 2010 budget deficits. Although it is possible that rate reductions on certain taxes, such as the state’s corporate income tax, could result in increased revenue in the short run, most rate reductions would be unlikely to help much in closing the current budget deficits. For FY 2011 and beyond, however, the Legislature and Governor should implement large, pro-growth rate reductions on all taxes, and if possible, abolish the state’s income taxes. The best thing we could do for the future of the Arizona economy would be to establish our state as the number one tax shelter in the nation, and to become a magnet for entrepreneurs, business relocations, and human capital.

One tax policy that will help to close the state’s budget deficit is the expansion of the state’s existing personal and corporate income tax credits for private school tuition. When children leave government district schools and go to private schools, they save the state money, greatly improve their chances of getting good educations, and prod government district schools into improving their performance. AFP Arizona urges the Legislature and Governor to make it easier to contribute to the existing personal and corporate tax credits, and to enact a personal use credit for parents who pay for their own children’s education.

Tom Jenney
Arizona Director
Americans for Prosperity
(602) 478-0146

Arizona must batten down the spending hatches, cut taxes
By Tom Jenney
Arizona Daily Star
Tuesday, December 30, 2008

The Arizona government has collided with a fiscal iceberg, and Captain Gov. Janet Napolitano is sailing away to Washington in her own personal lifeboat, the S.S. Obama.

Arizona taxpayers, state legislators and incoming governor Jan Brewer are stuck on board, using bailing buckets to keep the ship from sinking further into the deep waters of unconstitutional debt, deceptive accounting and growth-killing tax increases.

Of course, Captain Napolitano did more than anyone else to steer the state into the dangerous straits of fiscal irresponsibility.

Thanks to her strong bargaining position in budget negotiations, the absence of fiscally conservative majorities in either chamber of the state Legislature, and frequent cheerleading in the state's editorial pages for increased social spending, Napolitano was able to ratchet up state spending to unsustainable levels.

From 2003 to 2007, state spending increased by 59 percent, at a time when the state economy grew only 42 percent (a figure inflated by the housing bubble). The result of rapid spending increases has been a significant increase in the size of government as a portion of the economy.

According to Napolitano's own budget office, state government in 2007 spent more than 7 percent of state personal income — the highest level of spending since 1980. The inevitable result of that over-spending was massive budget deficits during the next economic downturn.

Of course, now that the state government is short of money, some of the usual suspects are coming around, arguing for tax increases. Some economists believe that tax cuts are to blame for Arizona's current budget deficits.

But taxes and spending are different sides of the same deficit coin. If spending increases remain modest, the government can balance its budgets, even with slower revenue growth. But as we have seen, spending increases were anything but modest.

In 2006, two out of every three dollars of the state's billion-dollar projected budget surplus went to new spending, while one dollar went to income- and property-tax cuts.

Next year's general fund spending commitments will be at least $2.5 billion more than available revenues.

The higher revenues the state might have had without the 2006 income and property tax cuts would have covered less than one-fifth of the gap. And that assumes (unrealistically) that the extra revenue in 2006 and 2007 would not have pushed spending levels even higher.

If Arizona government had been subject to the Taxpayer Bill of Rights (TABOR) since 2003, with spending growth limited to the rate of growth of population plus inflation, there would be no budget deficit crisis. Under a more permissive limit, in which spending growth had been limited to the rate of growth of the Arizona economy, the current deficit would be one quarter of its projected size.

If Arizona government is to stay afloat fiscally, it needs a firm spending limit, not higher taxes.

Contact Tom Jenney through www.aztaxpayers.org

No comments: