The AZ GOP caucus has made a quarter-billion dollar property tax cut the
non-negotiable centerpiece of this years budget process as we face as much as a
$1 billion budget shortfall and even bigger budget deficits projected for 2009
and even 2010.
Why does the GOP want to cut taxes in the middle of a looming national recession and huge (~10%) state budget deficit?
There are very good reasons, none of which has anything to do with fiscal prudence, and everything to do with politics and ideological commitments:
First, and most obviously, they get to have their cake and eat it too by eliminating this property tax. The reinstatement of the state equalization property tax levy will take effect next year, and thus repealing it is budget neutral this year, yet the GOP gets to claim a quarter-billion dollar tax cut going into a tough campaign season in which the Democrats could quite conceivably take away their majority. They get to lock in a tax cut, and transfer the cost of that $250 million dollar cut to the General Fund next year.
Learn the next two reasons after the click...
The GOP claims, not without some shred of truth, that schools won’t lose any funding as a result this year, and further that they will not lose any funding going forward. But legislators will have to struggle to cover the $250 million dollar hole loss of the property tax levy will rip in the General Fund every year from now on. Other programs may have to take cuts to compensate, and school funding could certainly be squeezed as legislators struggle to cut enough spending out of the General Fund. Despite the GOP’s sophistry of a “costless” tax cut that won’t affect schools, they are attempting to elide and hide the simple truth that killing the equalization levy will force another $250 million in budget cuts from the General Fund next year, even as we face an estimated $1.5 billion dollar deficit.
Second, the GOP gets to turn the screws on government revenues and spending that will hard, if not impossible, to back out later. Because Arizona’s constitution requires 2/3rd vote to raise taxes, but only a simple majority to cut them, any tax cut that pulls dollars out of the budget acts as a ratchet to permanently squeeze government expenditures unless there is a reinstatement provision, such as was negotiated on the state equalization levy.
The GOP is pursuing their favorite tactic of hacking off revenue in the least defended parts of the budget in an effort to starve the state of revenue - and it's working wonderfully. Any time they get a repeal, reduction, or even redistribution of any tax (as opposed to a temporary suspension or rate decrease) they win a huge and likely permanent victory.
Throughout the 1990s, the GOP’s enormous tax cuts permanently downsized the General Fund by more than $1 billion a year since the early 1990s. However, this figure is only an estimate that substantially underestimates the revenue loss because each of those lost tax sources would have grown over time due to both population growth and inflation. Adjusted for population growth and inflation, the tax cuts enacted since the early 1990s amount to a figure closer to $2 billion lost each year from today's General Fund. Were it not for those cuts, we would still be in a surplus with adequate reserves to handle any economic downturn without loss of vital services.
The GOP has systematically gutted our public institutions in pursuit of political advantage and ideological satisfaction. The result has been devastating for our state, and they want to bring the pain yet again.
Average per-pupil expenditures in primary and secondary schools have fallen from 33rd in 1989 to 49th in 2007. During the decade of the 90s, Arizona teacher salaries dropped from being a tie for 23rd among the 50 states to 41st in FY 2000. Prop 301, a 0.6 percent increase in sales taxes earmarked by voter initiative for education that boosted teacher salaries, improved the ranking to 27th in FY 2005, but sales tax is the most regressive tax and one of the most volatile sources of revenue, making it less suitable as a method of education finance, a point which I’ll talk more about later.
State employee salaries in Arizona are extremely low across the board and our universities are experiencing brain drain as faculty leave to take higher paying positions elsewhere. The average state and local government employee salary suffered a 14.9 percent decline in purchasing power from 1990 to 2001, while employees in the private sector enjoyed a 20 percent increase in real income.
These statistics are a death knell for the long-term health of Arizona's economy. Education of your citizens is the best long-term investment in future prosperity that any society can make. And the GOP in Arizona has a track record that is a clear demonstration of their feckless attitude toward the long-term interests of Arizona's citizens.
With the funding of our public services already at an all-time low, additional cuts will be extremely painful and can literally destroy some of our institutions. Objectively, it would not be unfair to conclude that such an outcome is the Arizona GOP’s intent.
The GOP should be assigned full blame for this entire budget fiasco. It was they who changed the cap on the state rainy-day fund from 15% of the prior year's budget to 7% currently. If we had been able to save more in good years, we would have been able to easily smooth over this downturn in revenues. But the GOP didn't like that much stability, they wanted to use any surpluses as an excuse to cut taxes in our extremely cyclical state economy, not save for rough times ahead. The result is predicable and severe budget crunches such as the one we're now in.
Thank the Arizona Republican Party for this crisis.
Third, the raison d'etre of the GOP is objectively to use government policy to redistribute wealth to a narrow elite, while calling it "letting folks keep their money." The current effort to shift more educational spending from property taxes to the General Fund is yet another example of their modus operandi.
By shifting a quarter-billion dollars of spending on education from a property tax base to the General Fund, they shift that revenue from a highly progressive, stable, and equitable base (property and business owners of the state) to a highly regressive, variable, and inequitable base (lower income people pay much more of their income in sales and income taxes, which supplies the General Fund). The GOP are engaged in making the funding mechanism of our educational system much less fair and much more of a burden on Arizonans of modest incomes, and much more vulnerable to economic downturns.
Not only is this burden shifting unfair, it’s likely permanent and fiscally risky for our schools. Arizona’s constitution precludes increasing even a relative increase in tax revenue without a super-majority vote, even if total tax revenues remain constant. Thus, once the GOP succeeds in shifting $250 million of revenue to a less progressive tax source, you can’t shift it back to a more progressive source without a 2/3rd vote if that means that somebody pays more tax. It’s rather absurd. Any time you let the AZ GOP win by shifting even one dollar of taxes to a less progressive source, they succeed by making Arizona’s taxation system less fair forever.
By relying more heavily on the General Fund to pay for education, the GOP will also be making our educational system more vulnerable to economic downturns. The sources of funding for the General Fund are almost entirely state sales tax and personal and corporate income taxes.
These sources are much more volatile than property taxes. Sales tax collections, as we are seeing this year, have been known to decline as much as 15% in downturns, individual income taxes have dipped as much as 10% in some years, and corporate income tax collections have been known to fall as much as 30%. Placing state equalization funding of education into the General Fund, when combined with Prop 301 sales taxes to make up the deficiencies in teacher pay, makes our educational system extraordinarily vulnerable to economic hard times.
The GOP majority seeks to create a much less equitable and much more vulnerable system of funding our public schools and to use education priorities as a foil for winning massive budget cuts in future years. Despite their rhetoric about the reinstatement representing “the largest tax increase in Arizona history” and a needed "economic stimulus", the simple fact is that their arguments are made in bad faith and they should be called on their utter lies.
It is absurd to call the reinstatement of this tax a tax increase. It's as if I had agreed to work overtime one weekend for my boss at time and a half, and when I got back to work on Monday, I complained that my pay had been cut by 1/3rd. It doesn't pass the laugh test. It is sophistry in its purest form.
Nor is there any economic stimulus available from making this change to property taxes; the very modest savings realized by homeowners and most businesses won’t be seen until next year, and they won’t constitute an immediately spendable cash influx to those most likely to spend it which is optimal for a Keynesian demand-side stimulus policy the GOP is trying to spin this as. I don’t even see why the GOP should be allowed to make Keynsian counter-cyclical policy arguments given their past marriage to supply-side snake oil nostrums and continuing reliance on absurd Laffer Curve claims that reducing taxes increases tax revenues. But just as they say there are no atheists in fox holes, I guess there are only Keynesians in recessions.
What will certainly happen if the GOP gets its way is that some of the largest, most wealthy, and most politically influential companies in the state will save millions on their property taxes.
Ted at RRR gives us the skinny on who the real winners are if the GOP gets its way:
- Arizona Public Service Co - $5,816,752
- Freeport Mines & Environmental Technology (aka: Phelps Dodge) - $3,013,553
- Salt River Project - $2,818,073
- Qwest Corporation/Qwest Communications Corp - $2,070,928
- Unisource Energy - $1,508,800
- Southwest Gas Corporation - $1,049,101
- Westcor - $657,716
- Southern California Edison - $600,579
- Banner Health - $577,096
- El Paso Natural Gas Co - $566,651
- El Paso Electric Co - $508,713
- Asarco Mines & Environmental Technology - $497,448
- Target Corporation - $379,360
- Discovery Health System - $378,747
- Safeway Inc. - $373,203
- Wal-Mart Stores Inc. - $363,374
- Panda Gila River, LP - $354,438
- Mesquite Power LLC - $351,459
- BNSF Railway Company - $341,381
- Tri-State Generation & Transmission - $317,285
That’s what the GOP is really on about in their determined drive to eliminate the equalization levy: shoveling more money into the maw of their greediest, most powerful donors at the expense of everyone else, using fiscal crisis and spurious rhetoric as a cover and an excuse to do so.
The GOP case to repeal this tax is so transparently weak, and the effects so thoroughly irresponsible and damaging, that the GOP is having difficulty holding their caucus together on the issue. Two Republican Senators, Tom O'Halleran and Carolyn Allen have indicated that they will not vote for the repeal, which may kill the measure in the Senate before it ever hits the Governor's veto stamp.
Both Senators must realize they are in for a woodshedding by their own party for doing what's right. O'Halleran told the Capital Times, “It’s an election year. It’s a hard decision for myself to make and anybody else that is going to make that decision, but at some point in time, you have to look at yourself in the mirror and say I have to do what’s right for the state, not just what’s right for my political future.”
I guess I can't say that all Republicans are out to destroy the government, but the rare exceptions (who richly deserve our support and thanks) do tend to prove the rule.
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