Saturday, December 27, 2014

"GOP learns lessons from Sam Brownback's tax scare"

Really? Well ...

Here is a report from Politico on how the GOP in various states are coping with limited revenue and already cut-to-the-bone services.  It does seem that the voodoo economists are retreating from campaign promises that, if realized, would have led their states down the same path to economic disaster as Kansas.  For example, in AZ our Governor-elect Dicey Doug Ducey promised to eliminate the state income tax (without any plan as to how to make up the billions of dollars in new deficit).  Now his spokespersons are talking differently.

An Arizona Republican close to GOP Gov.-elect Doug Ducey, who wants to make serious changes to the state’s Tax Code, said they’ll communicate more realistically than Brownback: Though they [still] think tax cuts grow the economy, “we have never said decreasing taxes would increase state revenue.”

But that's the whole theory: tax cuts grow the economy and thus automatically generate more revenue.  These guys continue to believe this stuff.  They just think Brownback screwed up the implementation.  To continue:

Republicans have learned a budget lesson from Brownback, too: Make sure you have the money.
“What Republican generally learned about the Kansas experience was to make sure you have the budget handled before you embark upon the tax changes,” said Stephen Slivinski, a senior economist at the conservative Goldwater Institute, who added that “if tax cuts are ever going to be in the offing, you have to handle the budget and do so in an honest clear way to make sure there may not be traps that might have befallen the Kansas effort.”

The thread running through all this is if we just communicate better all will be well.

Arizona’s new governor-elect is in a similar boat [as other states like Wisconsin]. Ducey ran on a platform of reducing income taxes as close to zero as possible, but his transition team is now facing a potential $500 million budget shortfall and court order mandating the state spend more on education.
So tax reform and tax cuts will likely have to wait.
“Because we’re facing such a large budget shortfall, I haven’t heard anyone speak of cutting taxes any more than we already have,” said Jennifer Stielow, vice president of the Arizona Tax Research Association, who sits on Ducey’s budget study committee that will offer up recommendations for his first budget. “It’s not the environment to propose something like that.”

So don't look for a roll-back of the corporate subsidies initiated by Brewer anytime soon.  That quote contains an implicit signal that those subsidies will stay in place.  And don't look for a sudden immigration of new businesses to AZ.  After all, we're agin immigration in AZ.

The remaining options for Ducey and legislative chums are not great.  Hiking taxes is not likely.  Rescinding the corporate tax giveaways cuts would be admitting the theory is wrong so they cannot do that.  Scrapping Medicaid would blow another hole in the budget.  They most likely will have to restore funding to education (after they lose their lawsuits).  All that adds up to a deficit of a billion dollars  ... and climbing.  To avoid truly devastating cuts to services, as far as I can see, the only source of revenue is to tackle tax expenditures aka sales tax loopholes - a source of revenue worth as much as 12 billion dollars.  Does anyone in Phoenix have the gumption to deal with that one?



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