Action Alert: Contact your state legislators today to oppose these tax bills

Before the start of the legislative session I explained that Arizona’s GOP leaders have no serious plans to make up for the ‘lost decade’ of budget cuts. Arizona has had a structural revenue deficit for years due to annual GOP tax cuts which become permanent, and prevent making up for previous year budget cuts to essential programs:

This is the “tyranny of the minority” of Republican anti-tax zealots empowered by Proposition 108, the “Two-Thirds for Taxes” Amendment (1992), which requires a two-thirds vote of each chamber of the legislature to either approve a tax increase, or to reduce or eliminate tax credits, tax exemptions, or deductions, Supermajority Requirement for Raising Revenues Jeopardizes Arizona’s Economic Future, or as I like to refer to it, the “GOP’s weapon of mass destruction.”

Republicans have passed a tax cut virtually every year since 1992, and those tax cuts become permanent because of the supermajority vote requirement. Past tax cuts or exemptions, etc. are never subject to review for sunsetting based upon effectiveness or having outlived any usefulness, or altering or repealing these tax provisions during times of economic downturns — like the Great Recession. It is reckless fiscal irresponsibility on steroids. The single most important legislative act citizens of Arizona could take by way of citizens initiative is the repeal of Proposition 108 (1992).

Going in the exact opposite direction, Republicans in the Arizona Senate today will be voting on SB 1489, a bill which would require the state to return any “surplus” revenue in the form of a tax cut. It also seeks to tie the hands of future legislatures in a perfect coda to Proposition 108, so that there will never be enough revenue to restore years of budget cuts to essential programs. It is reckless fiscal irresponsibility from Republican anti-tax zealots.

Howard Fischer reports, Legislative proposal could result in automatic cuts to Arizona income tax rates:

It’s not quite the “taxpayer bill of rights” that then-Gov. Jan Brewer vetoed nearly a decade ago as “too restrictive.”

But state lawmakers are weighing legislation that, if it works as advertised, could result in automatic cuts in income tax rates with no realistic chance they will return to where they are now.

The proposal set for Senate debate Monday would require budget officials to figure out how much of a “surplus” Arizona has each year. Then, after accounting for inflation, population growth and required spending, the Department of Revenue would be required to adjust income tax rates to return 50% of that surplus to individual taxpayers.

Sen. J.D. Mesnard, R-Chandler, who wrote the measure, SB 1489, said it’s designed to both:

• • • Allow the state budget, estimated to hit $12.3 billion this year, to continue increasing to meet the needs of a growing state
    • Provide flexibility for lawmakers — or voters — to enact new programs.

But some Democrats say there’s a major flaw.

“The biggest problem with this is the ratchet-down effects,” said Rep. Mitzi Epstein, D-Tempe, in discussing what appears to be identical legislation, HB 2752, being pushed in the House by Rep. Bret Roberts, R-Maricopa. [This bill has been retained on the COW calendar].

“The problem is that, if in one year, the DoR is forced to decrease income tax rates, they never get to go back up again” if the need arises, she said.

Mesnard conceded his measure is structured with a one-way ratchet.

“The idea behind these is to give tax relief and use growth in the economy that we get from the tax relief to lower taxes,” he said.

And if the economy goes south and needed revenues dry up?

Mesnard said legislators would still have the option of increasing tax rates should that become necessary. But he acknowledged that would require a politically difficult, if not impossible, two-thirds vote of both the House and Senate. [See Prop. 108 (1992)].

Still, he argued, the big selling point of his plan is flexibility.

He said measures like a “taxpayer bill of rights” mandate automatic tax cuts for the entire amount collected above the prior year’s spending after accounting for inflation and population growth.

Proponents of that plan argued in 2011 that such ideas were a necessary curb on government growth.

Brewer, in her veto letter, acknowledged that the existing constitutional spending limits, tied to total state personal income, are “too generous.” [They are not.]

But the measure she vetoed “unfortunately” used “a mechanism that is too restrictive,” Brewer wrote, citing a similar measure enacted in Colorado and calling it “an experiment that failed.”

By contrast, Mesnard said, his proposal earmarks just half the excess revenues to be used for tax cuts.

More significant, he said, is that the amount to be used to lower tax rates would be based not on all excess revenues but only those that budget analysts consider “structural,” meaning they’re not due to some particular one-time boost in the economy.

That’s a crucial difference.

For example, legislative budget analysts expect the surplus this coming fiscal year to approach $1 billion. But they say about $685 million of that is one-time dollars — revenues unlikely to repeat in future years — with only $300 million anticipated to be baked into ongoing revenues.

This is $300 million badly needed to “back fill” previous year budget cuts to education, healthcare, infrastructure improvements, etc. — it represents only a drop in the bucket of actual needs.

So if Mesnard’s bill were already in effect, the formula would mean returning $150 million to taxpayers in the form of lower tax rates and not nearly $500 million.

He also said the measure is constructed so the state is using this year’s revenues and expenditures as a base.

As crafted, that base would automatically increase every year to account for inflation, population growth and any newly enacted programs. So in years with slow economic growth — those where revenues pretty much kept pace with the annual adjustments — there would be no reduction in rates.

More significant, he said, that base continues to grow.

“In theory, if you dip, you’re not going to have to, the next year when you go up a little bit, suddenly have to cut taxes again,” Mesnard said. “It’s always going to be based on you reach the high water mark (for revenues) and then go beyond that high water mark before you trigger anything else.”

There is another difference between a taxpayer bill of rights and what Mesnard wants, one that could prove more acceptable to Democrats.

The version of a taxpayer bill of rights in Colorado does not tinker with tax rates. Instead, it provides for a rebate on individual income taxes determined each year.

So in years where there are not excess dollars above the formula, there is no rebate. The tax rate stays where it was. And there is no worry of a ratcheting-down effect.

“I entertained that,” Mesnard said. But he scrapped the idea because his measure is structured so it does not consider one-time surpluses but only those that legislative budget analysts believe will continue.

Still, he said, that remains an option.

“I’m open to that if there’s a lot of pushback on the idea of using ongoing surpluses to permanently buy down tax rates,” Mesnard said.

When the House version (HB 2752) gained preliminary approval this past week, Epstein argued that it would mean a loss of $64 million the first year, $71 million the second year and $110 million the year after that.

Mesnard, however, said those numbers are based on an earlier version of the measure, one that did not consider the built-in growth of new and expanded programs approved by the Legislature or voters.

Along the same lines, Mesnard said his proposal is written so it would not undermine the proposal by Invest in Ed to increase income taxes on the most wealthy to raise $940 million a year for education.

He said that’s because the education initiative, if it qualifies for the ballot and is approved by voters, would spell out how the money would be spent. And, as a part of state law, that would become part of the base against which future surpluses would be measured.

It should not require citizens to go to the great expense and difficulty of a citizens initiative to adequately fund education in Arizona. The Arizona Constitution requires the Arizona legislature to do this, a constitutional duty Republicans have routinely ignored for decades.

If the state wants “flexibility” to deal with funding essential programs, defeating these so-called “taxpayer bill of rights” bills and repealing Prop. 108 (1992) would be the fiscally responsible thing to do.

As I indicated in my earlier post, “Catching up with additional funding to restore the GOP budget cuts during the ‘lost decade’ will not be a GOP priority. Arizonans will have yet another ‘lost generation’ of Arizona children sacrificed on the altar of corporate welfare tax cuts.”

Contact your state legislators today to oppose SB 1489 and HB 2752.