Despite economic forecasts, Arizona Lege is drafting a bill for a flat tax that transitions into a consumption tax to eliminate the state income tax

Economists who serve on the state Financial Advisory Committee paint a grim picture, saying they’ve given up on any post-recession boom in Arizona. and warning that the next recession could come soon. Budget forecast sets up school funding fight:

The Arizona Legislature and Gov. Doug Ducey will have about $250 million in additional ongoing revenue to work with as they begin develop the fiscal 2017 budget over the next few months, according to the latest projections from state financial experts.

[But] economists who serve on the state Financial Advisory Committee said they’ve given up on the arrival of any post-recession boom and warned that the next recession could come within the next couple of years.

They recommended state leaders neither institute any new major tax cuts nor any significant spending increases.

“It’s important we remember some of the lessons we learned in 2008 when we used $500 million in one-time money to finance ongoing spending,” said Joint Legislative Budget Committee Director Richard Stavneak.

Stavneak and other economists at Thursday’s meeting said historic trends indicate the nation is due for another recession within the next couple of years.

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Stavenak said if the Legislature doesn’t significantly boost spending or tax cuts, the state could see a structural balance — where ongoing revenue outpaces ongoing spending — next fiscal year. It would be the first time since 2006 the state hasn’t been structurally in the red.

Federal Reserve minutes released yesterday indicate that the Fed believes the economy is insulated from the China slowdown:

Federal Reserve officials believe the U.S. recovery will likely remain insulated from the slowdown in China that has roiled the global economy, keeping the central bank on track to begin ending its extraordinary stimulus later this year.

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But not everyone agrees. In an op-ed in The Washington Post, Harvard economist and former Treasury Secretary Lawrence Summers that the global economy is in the most danger since the financial crisis in 2008. The International Monetary Fund earlier this week lowered its forecast for  world growth for the third time this year. IMF Downgrades Forecast for World, Emerging Market Economies:

China’s slowdown and tumbling commodity prices will push global economic growth this year to the lowest level since the recession year 2009, the International Monetary Fund predicted Tuesday.

In a report Tuesday in advance of the IMF-World Bank annual meetings here this week, the fund says the world economy will grow 3.1 percent this year, down from a July forecast of 3.3 percent and from 3.4 percent growth last year.

“The risks seem more tilted to the downside than they did just a few months ago,” IMF chief economist Maurice Obstfeld, told reporters.

Still, Obstfeld downplayed the risk of a global recession.

The Federal Reserve last month cited economic weakness around the world — and especially in China — when it decided to postpone a long-anticipated increase in short-term U.S. interest rates, which it’s kept near zero since December 2008. Obstfeld said any rate increase in the United States would be good news, reflecting the Fed’s vote of confidence in the American economy, the world’s largest.

The fund predicts the United States will grow 2.6 percent this year, up from a July forecast of 2.5 percent and from 2.4 percent growth last year.

Emerging market economies will likely grow 4 percent, which would mark the fifth straight annual drop. They have been hurt by an economic slowdown in China, which has reduced demand for emerging market raw materials and pushed down prices of commodities such as copper and oil.

“What happens in China has repercussions for the entire world economy,” Obstfeld said.

While the U.S. economy is performing better than the rest of the world, the U.S. is still part of a global economy that has shown signs of significant weakness this year. There are signs of global recession on the horizon.

There are also things that Tea-Publicans in Congress could do to sabotage the U.S. economy, i.e., once again threaten to default on the federal debt when raising the federal debt ceiling comes due on November 5. The last time the GOP did this it resulted in the first downgrade in the creditworthiness of the U.S. in our history. The Tea-Publican Hostage Taking Credit Downgrade – Thanks, Mitch! A failure to agree on a long-term budget deal by December 11 could result in a government shutdown at the end of the year. The last Government Shutdown Cost $24 Billion, According to an Estimate from Standard & Poor’s. And first quarter economic performance has been poor the past several years because of extreme winter weather.

With this in mind, I want to return to the point that Joint Legislative Budget Committee Director Richard Stavneak made above: “IF the Legislature doesn’t significantly boost spending or tax cuts, the state could see a structural balance — next fiscal year.” Next year is an election year, and the GOP has always cut taxes in an election year.

In fact, here is what the evil GOP bastards in the Arizona legislature are working on right now (h/t Bob Lord). The Tax Justice Blog writes, State Rundown 10/8: Credits, Cuts and Britney Bill:

Plans to eliminate the state income tax in Arizona continue, with State Rep. Darin Mitchell telling officials that the push will come during the next legislative session. Mitchell, who chairs the Arizona House Ways and Means Committee, says the current strategy is to fight for a flat income tax that can be slowly eliminated over time: “We want to go to a flat tax next year, and then, maybe over the next five or six years we’ll ratchet down the collection until it no longer exists. We’ll just increase sales tax, on certain items.” Mitchell expects that Gov. Doug Ducey, who ran for election on a platform of eliminating the income tax, will support his plan.

Were Mitchell’s plan to actually go forward, tax fairness in Arizona would become much worse. According to ITEP’s Who Pays? (5th Edition) report, Arizona has the 8th most unfair tax system in the country, and the bottom 20 percent pay almost three times as much in taxes as a share of their income as do the top one percent.

This GOP flat tax fantasy was last seen in 2009 from House Speaker Kirk Adams, ominously now the chief of staff to Governor Ducey (Rep. Darin Mitchell may be the sponsor of next year’s bill, but this has the influence of Kirk Adams and the Governor all over it), AZ GOP flat tax proposal will raise average Arizonan’s income taxes, and again in 2011 by Rep.  Steve Court, ‘Flat Tax’ pulled from a final vote – for now (both bills died). In 2011, former state Senator Paula Aboud (D-Tucson) organized “Ax The Flat Tax” Forums around the state that turned public opinion strongly against the flat tax.

Legislative Democrats need to organize opposition now to kill this bill in the crib before it can be dropped into the hopper in January.

3 responses to “Despite economic forecasts, Arizona Lege is drafting a bill for a flat tax that transitions into a consumption tax to eliminate the state income tax

  1. AZ BlueMeanie

    Howard Fischer provides additional details in the AZ Daily Star, http://tucson.com/news/state-and-regional/economists-predict-extra-m-available-in-next-year-s-state/article_2362b741-667d-580d-8473-4e060f66b23a.html

    “Richard Stavneak, staff director of the Joint Legislative Budget Committee, said the balance consists of one-time revenues that can’t be counted on, ranging from money left over from last year to a spike in income tax collections from capital gains.

    * * *

    Any talk of having money to spend or give away is contingent on appellate courts overturning a trial judge’s order that the state is illegally shorting public schools of the money voters said they should get to keep pace with inflation. In fact, Stavneak said if the state loses, that will wipe out all of the extra money.

    The report also raises the question of why the state’s recovery is not stronger, given the large corporate tax cuts already approved and still taking effect, cuts that backers promised would lead to new jobs.

    Another $97 million in tax cuts is set to kick in next fiscal year. And by the 2019 budget year, Stavneak said the changes already pre-approved will have cut the state’s revenue base by $259 million below what it is now.”

    This is Governor Jan Brewer’s corporate welfare tax cut plan that is still being phased in over 4 years, so the GOP tax cuts from previous years are still adding to the structural revenue deficit at the same time Governor Doug Ducey wants to cut taxes even more.

  2. In both cases these guys, Hartmann and Jones are making money off of fear. Their major advertisers are gold speculators who make money off of fear of economic collapse. No one ever makes money from gold except the guys manipulating the market. If these things, economic collapse, could be predicted so easily they could be stopped just as easily. Deal with problems that come up, create regulation that provides a cushion and prevents major financial disaster, but don’t be afraid. Don’t let fear control you.

  3. North Of The River

    Thom Hartman’s popular book “Crash of 2016” says the Great Depression will happen next year.

    Crazy Libertarian Alex Jones says the same thing.