Part 2 – Why Ducey’s Promise to Cut Taxes is a Lie

In my previous post, I showed why Governor Ducey’s focus on tax reduction is a disastrous recipe for our state. Now let’s look at how those tax reductions we’ve been seeing aren’t really helping the average Arizonan. Instead, we continue to see the tax burden transferred from those who have, to those who can least afford.

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 13^th-lowest individual income tax and the 10^th-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 4^th fastest growing in the US after Colorado, California and Texas. Of course, we also have the 4^th 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. Here’s just a few examples of how we continue to be “taxed” all the while Governor Ducey claims he is reducing our tax burden.

 1.  The highest per-pupil cuts in K-12 education funding in the Nation from 2008 to 2012 caused Arizona school districts to seek more locally controlled funding as a way to survive. The number of districts asking their communities for funding through bonds and overrides in 2015 was up 150 percent since 2008. The good news for districts is that the voters recognized the need for the funding and the approval rate for these measures was also high. The bad news is that this was no reduction in taxes, but just a shifting from the state to the local level. Unfortunately, often the communities with districts most in need have the least amount of capacity to help.

2.  Another solution many districts were forced to try in order to make ends meet was to reduce their school week from five days to four. As of May 2015, 43 districts (most in rural communities) in Arizona have already gone this route with many others considering following suit.  Arizona districts make up one-third of all four-day week districts in the Nation. There is debate over whether this move really produces the touted savings in the long run, but parents certainly don’t come out on top.  Rather, a four-day school week often requires parents to find childcare or, reduce the hours they work in order to care for their children when they are not in school. It also results in decreased wages for cafeteria workers and bus drivers. These people (especially in rural areas) may not have any real options to make up the difference.

3.  The state’s push of school choice via charters and Empowerment Scholarship Accounts (essentially vouchers) has been another way to transfer education costs to the local level. Charters usually require parents to transport their children to the school, do not offer any free and reduced lunch programs, and often require donations of parents. Schools in the Great Hearts Academy schools for example, “recommend parents contribute at least $1,200 to $1,500 per year per child to the school. There are also a variety of fees that are either not charged at all in district schools, or are much lower than what the charters charge.

4.  Even before Governor Ducey and the Legislature cut $99 million from our state universities and $19 million from our community colleges, Arizona had the deepest cuts in the Nation to higher-education spending. Those cuts drove the significant fee hikes and steepest tuition hikes as well, rising 83.6% since 2008.

5.  The Highway User Revenue Fund (HURF) which includes several taxes and fees such as the gasoline and vehicle license tax, was established to maintain roads, bridges and other transportation needs in the state. The Legislature swept about $860 million from this fund from 2000 to 2014 for other priorities. This forced local government to try to keep up with a more than $455 million in backlogs (with only 70% of cities reporting) for construction, repair, and maintenance of municipal streets. This isn’t just a double tax on Arizona residents (pay taxes to maintain the roads, then pay for car repairs after unmaintained roads cause damage), but also translates into a significant loss of jobs that could employ Arizonans to repair infrastructure and ensures that if and when the repairs occur, they will cost significantly more than if we had just maintained the infrastructure to begin with.

6.  In 2015, the state shifted 25% of the cost (about $12 million) for housing juvenile offenders to the counties, based on total population of the county. The counties are now required to raise the funds for this bill either through increased taxes or reduced services.

7.  Also in 2015, the cost to pay the Arizona Department of Revenue to collect and distribute sales taxes was passed down from the state to cities and counties. The change is expected to cost cities and counties about $17 million. This change applied even in counties that don’t charge a sales tax (such as Pima whose share of this new bill is $1.6 million.)

8.  In the past, the state picked up most of the cost of presidential primary elections. In 2016 however, the cost for these elections will be pushed down to the counties who will pay more than $3 million extra to cover those costs.

There are countless examples of this shifting of real costs, and even more in lost opportunity costs. Local governments say the state merely balanced its budget on their backs and saddled them with a huge financial burden that will continue to result in layoffs, tax increases and crumbling roads. Governor Ducey’s office responded that it is up to local government leaders to make responsible decisions. Really? How can local government leaders make responsible decisions when budget expenses they had no part in approving, are forced upon them without any vote in the process? Leave it to Ducey and Company to not only make a really bad brown matter sandwich for local governments to eat, but then also blame them for complaining how it tastes.

In this, as with any debate, it is possible to find a source to support any point of view. For me it is really this simple…does it make sense that you would tax the poor more to provide tax relief for the rich? Does it make sense that corporations are lured to locate in a state so they can pay even less than the under one percent they generally pay in corporate taxes? Or, does it make more sense that corporations are savvy and look at a variety of indicators to determine where to locate such as the quality of local schools, availability of a quality workforce, or a solid infrastructure? One doesn’t need to be a genius to understand basic economic concepts, all it really takes is a little common sense. A strong middle class is the best path to prosperity for our communities and our nation and economic policies that support its growth are the solution. Our tax policies should incentivize the behavior we need for the health of our communities, states and nation, not for the enrichment of a few. Finally, business definitely has a critical role to play, but so does government. It should ensure we are provided the basic essentials of safety, security, infrastructure and education and our tax policies should ensure sufficient revenue to do that properly. And, it should do that at the right level so as to ensure proper oversight and economies of scale.

No one party has the right answer here and there is no one right solution. It takes a smart application of available tools, wise employment of lessons learned and yes, a whole lot of common sense. Alas, as Voltaire is credited with saying in the early 1700’s: “Common sense is not so common.”