Friday, January 22, 2016

Governor Grifter's ice cream machine

The corporate tax breaks are starting to kick in and the state of Arizona is teetering on a financial abyss. Governor Ducey's Grifter's education deal (1,2,3,Tax Breaks for Me) offers an illusory fix playing off short-term gains for education against the long term reduction in education's purchasing power. At the same time, he promises tax cuts but the cuts are likely to shift the tax burden from businesses to the poor. The ice cream will melt sooner than later in Arizona's fiscal furnace.

Christopher Saunders (a resident of Tucson), writing in the Arizona Capitol Times (subscription required) has a perfect analogy to Prop 123 along the lines that the GOP so likes. Would your family finances survive a Prop 123?

When you sell your car, you get a fistful of cash. But you know what? You also don’t have a car anymore. If you use that cash to buy a new car, great. You can still go to work. You can still drive your kids to piano lessons. If you use that cash to build a pool, not so great. You can afford the construction costs, but what about the filters and chemicals that keep the water safe for your kids? Over time, the infusion of cash you got from selling your car dwindles. Eventually, it disappears entirely.

The governor and other Prop. 123 supporters want to sell public land. With the cash, they want to raise salaries, buy books, paint classrooms. What they don’t want to do is think about how they will keep paying teachers once the profits from the land sales have dried up. This constitutional amendment offers a temporary fix for a deeply entrenched failure of public policy. Our students deserve better.

Prop. 123 represents a key piece of Governor Ducey’s strategy to bolster his reputation as a fiscal conservative. His political narrative simultaneously embraces tax cuts and spending increases. Of course, he’s literally selling the land from under our feet, but he hopes we won’t notice.

To complete the deception, Governor Ducey offers the golden calf of fiscal conservatism: the elimination of the income tax. “Go forth, incrementally richer taxpayer,” he whispers in our ears, “Spend to your heart’s content! (Or, rather, up to $545, the amount the average Arizona taxpayer will save if the income tax is eliminated). Go ahead, buy a set of used golf clubs from a second-hand store in the sketchy part of town. You deserve it!”

Saunders may be optimistic. Over at Blog for Arizona, AZBlueMeanie offers a related take on Prop 123 and explains why the collapse of the grand deal ("1,2,3,Tax Breaks for Me") is likely to occur sooner than the 10-year expiration.

I keep being told by advocates of Prop. 123 that we have to vote for it because it is the only way to get education funding in the classrooms immediately. They are trying to sell it on short-term gains while ignoring the long-term consequences of Prop. 123, one of which is the “triggers” that would allow our lawless Tea-Publican legislature to renege on the inflation adjustment funding in the event of an economic downturn, or if state funding for education reaches 49% of the general revenue budget. That makes the promise of Prop. 123 an illusory promise.

Is anyone paying attention to what is going in the global economy right now? A recession is almost certainly on the horizon in the near future. Is the stock market telling us we’re headed for a recession?; Are We Headed For Another Recession? | FiveThirtyEight.

And with the structural revenue deficit built into Arizona’s budget by more than 20 years of unrelenting GOP tax cuts — which become “permanent” because they cannot be reversed under the current partisan makeup of the legislature and Prop. 108, the “Two-Thirds for Taxes” Amendment (1992) — there will be more GOP budget cuts to balance the budget as tax revenues decline, and education funding will soon enough reach that 49% trigger in Prop. 123, cutting off any more funding well before it is set to expire in 2026.

Also at Blog for Arizona, Linda Lyon explains why Governor Grifter's promise to cut taxes is a con. The problem is that we are getting taxed in many other ways. The income tax cut might benefit businesses but will certainly cause a shifting of revenues to things like the regressive sales tax.

Governor Ducey is intent on eliminating income tax in Arizona. Why might you ask? Because, for this Governor and others like him, it is ALL about business. And although corporate tax breaks are good for large business, 97% of the employers in Arizona are small businesses like S-corporations, LLCs and partnerships. These businesses amount to over 40% of the private workforce and are currently taxed by the state via income tax. I’m not sure whether ASU’s Center for the Study of Economic Liberty 2015 policy report by Stephen Slivinski is the “policy roadmap to elimination of the Arizona income tax” as it claims, or, if it was written to support Governor Ducey’s tax reduction plan. At any rate, Slivinski concludes in the report that: “The best hope Arizona policymakers have to eliminate the income tax is to phase it out over a number of years while maintaining budget balance.” He also makes the point that now that the state is on “surer fiscal footing”; it is time for Arizona policymakers “to look at important and necessary reforms over the next couple of years.” Waiting longer he claims, “may result in losing a golden opportunity.” Sounds like a Ducey talking point commercial to me.

Arizona already has though, the 13th-lowest individual income tax and the 10th-lowest combined state and local income tax in the Nation. Additionally, according to an article in Business Insider in August 2014, Arizona’s economy was ranked the 4th fastest growing in the US after Colorado, California and Texas. Of course, we also have the 4th highest poverty rate in the US with one in five Arizonans living in poverty. Obviously, there are winners and losers in Arizona’s current economy and Governor Ducey’s insistence on eliminating the state income tax and shifting state revenue collection to increased sales tax will do nothing to help those who most need it. Although sales tax is said to be a less volatile form of revenue than income tax, it also is the most regressive, hitting the poorest the hardest.

Of course, income and sales taxes are just two ways a state can tax its residents, there are a multitude of others. ...

Check Linda's post for the others.

In the long run, cutting revenues will be a disaster for education in Arizona - just as it has been in Kansas. But Governor Grifter's ice cream truck will be out of town long before the ice cream he is selling melts.

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