Prop 100 – Temporary Sales Tax Increase

May 5, 2010

Transcript:

Ted Simons:
Tonight on "Horizon," a discussion on the economic impact of proposition 100, the temporary sales tax increase. And we'll discuss how the new immigration law could impact the way Hispanics respond to the census. That's next on "Horizon." Welcome to "Horizon." I'm Ted Simons. Actor Danny Glover spoke out today against the state's new immigration law. Glover said the bill is, quote, misguided. He said there has to be a dialogue about the issue, and that as why he was here. Glover was also here to join Al Sharpton in leading a protest march tonight against the law. Glover also said that a boycott of Arizona may not be the best way for critics to respond to the law. That's a message of note to the Arizona hotel and lodging association. The group reports that the state's lost 20 convention and up to $10 million since the law was passed. In less than two weeks Arizona voters decide whether or not to raise the state sales tax. Proposition 100 is on the May 18th special election ballot. It temporarily raises the sales tax by one cent per dollar for three years. That's expected to generate nearly $1 billion per year, for education, health, and husband safety. If it does not pass, significant budget cuts will go into effect. Here to talk about the economic impact of proposition 100 is ASU economist Dennis Hoffman, and Byron Shlomach, an economist for the Goldwater Institute. Good to have you both on the show. Thanks for joining us.

Dennis Hoffman:
Good to be here.

Ted Simons:
We'll start with you, why is the sales tax a good thing for Arizona?

Dennis Hoffman:
Ted, great thing for Arizona in my opinion, I think it allows Arizonans the opportunity to get their fiscal house in order, it's a plan that's been discussed for a number of months. The real benefit I see in terms of allowing the citizens of Arizona, the taxpayers of Arizona to actually pay for the public Services they apparently want, I it this will actually result in a stability that we've been lacking in the last several years, and that will manifest itself in consumer confidence down the road.

Ted Simons:
Why is this law, why would this bill, this tax, I should say, the sales tax, why would it a bad thing for Arizona?

Byron Shlomach:
Well, you're taking money out of the private sector and transferring it to the public sector. And look, we can get our fiscal house in order without requiring people to pay more. There's plenty in government to be cut, plenty of ways, plenty of inefficiency, still, to be -- that we could deal with, and put our fiscal house in order. But by taking money from the private sector and putting it into the public sector, we're actually taking money out of what is the productive sector, the sector that pays all the bills, and putting it into a less productive sector. The ultimate result in the long run something that's much worse for our economy than if we just get our fiscal house in order by cutting where we need to cut in government spending.

Ted Simons:
Let's talk --

Dennis Hoffman:
Ted, he made two points I'd like to engage on. The first point that he made was effectively that there's plenty of cutting left -- plenty of fat, he didn't use the term, butt that's the picture he painted, in government. 2 billion, Ted, we have slashed 2 billion. If you don't believe me, that is my number, 2.2 billion, Bob Robb said this morning. The voice of limited government said we've slashed 2 billion already from the state's spending. That is a significant amount of cutting that's already been taking place. We have no revenue to come anywhere near paying for the amount of government that's left.

Byron Shlomach:
Keep in mind, we've already had a $250 million tax increase with the return of the equalization property tax. It seemed to disappear into a big maw.

Dennis Hoffman:
31 years, I've been here 31 years, Byron has been here a handful of years. Here's the problem with his argument. It lacks any historical context. From 1970 to the mid '90s, this state collected from taxpayers about $50 for every thousand dollar earned. And we spent it on education, public safety, health care. 50 bucks per thousand. What's the spend today? We're down to 40. What's the revenue today? We're down to 30. These are orders of magnitude that make 250 million pale in comparison.

Byron Shlomach:
But government doesn't need to grow with income. Government obviously needs to grow -- right -- it needs -- it can certainly grow with population, it can grow with inflation and in that sense --

Dennis Hoffman:
We're not growing that fast.

Byron Shlomach:
Spending, if it increases at that rate over the time period you're talking about, we could have had $8 billion in the bank.

Dennis Hoffman:
If revenues had increased at that rate, the metric you guys have set for revenues, we'd have a couple of billion more flowing in today. So why don't we? Because we've eliminated 40% of our tax --

Byron Shlomach:
Are you talking about the tax cuts that have occurred in the past? If you're going to argue that all of our woe was have been solved if we hadn't cut those taxes, you have to --

Dennis Hoffman:
Half of them.

Byron Shlomach:
-- you have to prove to me --

Dennis Hoffman:
Half of them.

Byron Shlomach:
-- that we wouldn't have spent that money. We'd have spent that money, we'd have spent every dime, and our fiscal situation right now would be far worse than it is.

Dennis Hoffman:
31 years, I've been here 31 years.

Byron Shlomach:
So?

Dennis Hoffman:
There is no tendency in this state to overspend. It's not in the gene.

Byron Shlomach:
You mean they don't overspend their revenues. Most states don't overspend their revenues, because they have balanced budget amendments. Just like Arizona does. Just like Arizona has systematically violated with the 350,000 --

Dennis Hoffman:
Had we not cut our taxes we could fully fund rainy day. If we had stayed with that provision that we had in 1995, 15% of the general fund budget had to go to rainy day --

Byron Shlomach:
I'm not going to argue.

Dennis Hoffman:
We got rid of it --

Byron Shlomach:
I'm not going to argue. I agree, our rainy day fund should be bigger, it should have been maintained. I'm not going to debate that. What we're debating is whether or not -- look, the amount of revenue you're talking about that has been cut over the years through tax rate decreases, which we have enjoyed marked economic benefit from, that -- the idea that somehow that would have rescued us today is silly, because every dime would have been spent.

Dennis Hoffman:
I've scoured this, what's the economic benefit of continually reducing the tax burden in the state of Arizona? I get it, Byron. A relative tax burden, having taxes in Arizona relatively lower than other states that can have some growth enhancing effects. We've been in that position forever. Our state grew by leaps and bounds in the â€˜70s and the '80s and the early '90s with the tax burdens far higher than they are today. Why? Because they were burdens that are far lower than California's forever.

Byron Shlomach:
Well, measuring yourself by the metric of California I would argue is not particularly a good idea. California is sitting at well over 12% unemployment right now. We're sitting at nearly 10%.

Dennis Hoffman:
How about Utah?

Byron Shlomach:
Utah, they've taken measures to reduce their tax burden.

Dennis Hoffman:
We would not have a problem today if we had Utah's tax structure.

Byron Shlomach:
You stay that, again, that is just disingenuous to say.

Ted Simons:
Before we -- I don't want to get too far afield, because the discussion is stimulating, however, the tax foundation says that our overall tax burden ranks about 41st right now. Those who support this tax increase say we can't afford this if it helps stabilize Arizona government, which in turn will help attract businesses because businesses out of the state want to see a stable government, want to see a stable society. How do you respond?

Byron Shlomach:
I agree with that. Businesses do want to see a stable government. They do want to see a stable society. They also want to see a stable tax system; they want to see a tax system that's not particularly anti-business. We have that in many respects. We have a commercial property tax that -- rate that's double that of residential property taxes, we have -- we have some pretty heavy-handed regulation in this state. There's a lot that we can do to improve our economy, that doesn't involve taxes, that doesn't involve stabilizing government spending, what we need to do is stabilize, yes, our tax system, but we -- look, when people argue that, well, an education system, a lot of funding in education is a good thing from a business perspective, I would argue, no, what they're looking for is a good education system. An efficient education system. One that does a good job with its kids and ours doesn't.

Ted Simons:
Same tax foundation that said our tax burden is 41st in the country suggested it's -- if the sales tax goes through in terms of state sales taxes, we jump from 28th to 8th in the country. Can we afford to do that at this time?

Dennis Hoffman:
Overall burden, weigh the benefit and costs. Here's what you get by voting yes, you get about a billion to spend, what does it spent on? Largely direct jobs in Arizona. What's the cost? It will hit the retail sector. The modeling that Goldwater has done said it's going to have draconian effects. The analysis that we've done, just simply does not agree. What's the difference? They're counting the production losses here in the state of Arizona. It might a couple of less T.V.s purchased, Ted. So there might be a job or two lost in China. We're not counting those jobs. What we're counting are jobs that are going to be preserved and created by this particular measure, and some of the jobs will be lost in the retail sector. This is on a small margin. This is not a license to tax and spend our way to prosperity. This is taking a very, very beleaguered tax base, one that has been -- we've seen 40% reductions in individual income taxes, one that has been slashed, and slashed, and slashed over the years, and asking for a small piece back.

Ted Simons:
I hear that those who are for the tax, and who are -- look at the economic climate, the fiscal condition, they say, we have had tax cuts in Arizona for decades. We have pushed this, especially individual income tax rates. They've gone down steadily. Why are we not an economic dynamo?

Byron Shlomach:
Well, there are a lot of things that go into an economy, obviously. It's not just the size of government, it also has to do with your regulatory atmosphere, it also has to do with your location. Arizona --

Dennis Hoffman:
Education, with your infrastructure, investments in human capital, all of those need to be added to the list that you started on. Because that's what --

Byron Shlomach:
Well, and -- of course. Those things do matter. And much -- none of this money is going toward infrastructure. When they say two-third assist going toward public education, that's not even true. Only half of it would. Less than half. The -- keep in mind that taxes are more volatile than the economy in general. That's absolutely true. We have a tax system that is very volatile. It depends too heavily on income taxes, it needs to be restructured. But again, the idea -- when the economy was going well, we enjoyed a lot of tax revenue, and our spending matched that revenue. The fact those cuts occurred simply kept spending from rising even more out of control.

Ted Simons:
I'm hearing that as far as the sales tax is concerned, this is the wrong time for it this, will hurt a recovery, I believe the Goldwater institute, you've had anything from 400 to $600 per year for an average family as being the impact. We could talk about those numbers in a second. Can Arizona afford this tax, this extra burden?

Dennis Hoffman:
We have a fiscal crisis in this state, Ted. And it's manifested itself in unbelievable erosion in confidence. Here's what I've done. I've looked at retail spend historically, and departures from the norm today, do you know that if we could restore confidence in this state, we wouldn't have to create one more job, or one more dollar of income to do it. At least initially. If we could restore confidence, we could inject between 14 and $16 billion of transactions into the state's economy. That would create a wealth of jobs and a wealth of income that. Will go a long way toward restoring confidence in the Arizona economy.

Byron Shlomach:
The source of prosperity is not government. There's been plenty demonstrated by Robert Barrow, a Harvard economist, who has shown in the "Wall Street Journal" his own empirical research that makes it clear that spending more money in government is in fact a way of negatively affecting the economy. The San Francisco fed has presented research, summarized research that shows the same thing. I'll tell you what the confidence destroyer was. And that was having our -- hiding our heads in the sand for at least two years while revenues fell, and spending didn't.

Ted Simons:
I want to get to the last question very quickly. The Goldwater institute, with numbers between 400 and 560, where are you getting those numbers? That suggests an average family is spending a lot of money $50,000 a year of things that could be taxed. Where is that coming from?

Byron Shlomach:
Well, first of all, the -- what you do is take the tax, the $918 million, divide by the population, you get a number per person, the average household is 2.64 people, you do the multiples, you get 373 to 400, depending on whether you're using the $1 billion revenue or 918.

Dennis Hoffman:
I can't get there. 75,000 dollar family of three? Do you know how much they pay in total, total, total combined state and local taxes? $4200. And he's saying by one penny on the sales tax, what -- they're off the chart.

Byron Shlomach:
Our personal income per household in this state is over $86,000. It's an average. I'm using an average. If you can't do average math, that's not my problem.

Dennis Hoffman:
You might be using an average from 2006 or something, Byron.

Byron Shlomach:
No, sir.

Dennis Hoffman:
This economy is hurting.

Byron Shlomach:
I can show you the numbers.

Ted Simons:
My question would be, yes that an average family of four, but you may have a 5-year-old and a 9-year-old in there and I'm not sure --

Byron Shlomach:
People look at per capita income in Arizona, per capita income is averaged, including children. That's $32,000 per person, including children. The average household is 2.64 people. You do the multiplication, and it comes out over 86,000 --

Dennis Hoffman:
All right. $75,000 family of three pays $4200 combined state and local taxes. If they earn 100 grand, they pay 6300. This is a very, very, very low tax state. He's contending that one penny on the sales tax is going to raise -- is going put an astronomical burden on them. It doesn't jive.

Ted Simons:
We have to stop it there. A stimulating discussion, and a good one, I hope, and I hope folks learned some stuff. Thank you both for joining us tonight on "Horizon."