The first rule of holes revisited

I did this post three years ago, The First Rule of Holes: When you’re in one, stop digging!, but apparently we need to revisit this rule because of Tea-Publicans in the Arizona legislature:

Arizona has a structural revenue deficit due to annual tax cuts since 1992. As I explained the other day:

HoleThis is how the anti-government, anti-public education, anti-tax GOP game is played: in each legislature since Prop. 108 was enacted in 1992, the legislature has enacted tax rate cuts and/or special interest tax exemptions and tax credits. This has had the intended effect of reducing tax revenues, creating a structural revenue deficit which results in a budget deficit. Because raising tax revenues is always off the table in the ideological GOP, the legislature takes out its meat axe and cuts the budget to essential state services like public education, health care and infrastructure (primarily roads).

Budget crises are not a bug but a feature for the Arizona GOP. They are in no way serious about resolving Arizona’s structural revenue deficit.

Fast-forward to today and this good explainer from Laurie Roberts of The Republic. Sorry teachers. Arizona Legislature pushing (yet another) massive tax cut:

Watch this week to see if the Arizona Legislature pushes to approve a bill that could amount to yet another massive tax cut.

Never mind that our leaders have no idea how much this particular tax cut will cost the state. Or how it’ll affect the schools, which for years have suffered due to deep cuts in state funding.

Never mind that the League of Arizona Cities and Towns is warning that the bill could result in a $120 million hit to the state budget and a $48 million loss to cities.

This thing has been loaded onto a bullet train bound for the desk of Gov. Doug Ducey, who is building his political resume on a pledge to cut taxes every year. Never mind that state funding to schools has plummeted and we have among the lowest-paid teachers in the nation.

Tax cut is on the fast track

The bill (House Bill 2479) cleared the House last week and its twin (Senate Bill 1392) appears poised to run through the Senate this week.

Unless common sense and the cities can slow it down, that is.

The bills would carve out a set of broad new exemptions in the sales tax code for certain things you — and more importantly, corporations — use online. Things like streaming services and software remotely accessed over the internet.

Under this bill, tax preparation and other sorts of software accessed via the cloud would be no longer be taxed. Ditto for movies and music streamed over the internet.

The Joint Legislative Budget Committee says it doesn’t have enough information to estimate the hit to the state budget though it says there will be a hit.

So naturally, it’s full steam ahead at the Legislature, where the [anti-tax zealots at the] Arizona Tax Research Association is doing the driving.

The next alt-fuels fiasco?

Supporters argue that the bill isn’t really a tax cut because the Legislature never authorized these things to be taxed. (And yet, they are taxed by the state Department of Revenue.)

Kevin McCarthy, executive director of ATRA, says he believes the bill would actually boost state revenues because it puts into law that digital goods are taxable, even as it exempts streaming services and items access through the cloud.

“We think the state is going to be collecting a boatload more money than they are collecting today,” he told me.

Nobody really knows for sure, because nobody really knows which businesses are paying the tax on digital goods and services and which ones aren’t.

McCarthy says the bill seeks to provide clarity on what is taxable and what is not — rather than leaving that to a future judge after an inevitable lawsuit.

What is clear (to me, at least) is that accessing things remotely – as opposed to buying software or music or movies in a big-box store or over the internet – is the way the world is headed.

This has alt-fuels written all over it. (Remember the new car subsidy law that legislators voted for but didn’t bother to read? The one that was billed as costing the state $10 million, quickly totaled $200 million and was headed toward $600 million when lawmakers hurried into an emergency session to staunch the bleeding?)

The digital tax exemption bill has been on a fast track but was delayed in the Senate late last week when the cities and other opponents stepped in front of the tracks to try to slow this thing down.

Initial cost of $182 million?

Based on reporting from 11 of the state’s largest cities, the League of Arizona Cities and Towns estimates this tax cut could cost $182 million, with more – much more – to come as the world goes increasingly digital.

“This is the way the world is going, to delivering more things online and over the internet,” Ken Strobeck, the league’s executive director, told me on Monday. “To make a distinction between a tangible product that you buy in a store that you pay tax on or the tangible product that you use online and produce documents or watch movies or listen to music — that one should be taxed and the other should not be taxed is just nuts, in terms of tax policy.

“And especially in terms of revenue hit as we move forward with more and more things onto digital platforms.”

Big companies support it

The bill is being supported a number of big companies, including Microsoft, Dish Network, Century Link, T-Mobile and Apollo Group, which runs University of Phoenix.

That tells me there is big money to be made.

This, in a state that can’t afford to properly fund its schools or pay your child’s teachers.

I explained previously, “Budget crises are not a bug but a feature for the Arizona GOP. They are in no way serious about resolving Arizona’s structural revenue deficit.”

Vote them out.

5 responses to “The first rule of holes revisited

  1. AZ BlueMeanie

    The Arizona Capitol Times reports “Lack of impact data stalls bills to bar digital goods’ tax” https://azcapitoltimes.com/news/2018/03/09/arizona-david-farnsworth-ken-strobeck-karen-fann-digital-goods-tax-bill/

    An effort to forgo sales taxes on digital goods and services has stalled while state budget analysts try to figure out how much Arizona may stand to lose in tax revenue.

    [T]he sponsor of SB1392, Sen. David Farnsworth, R-Mesa, said he won’t push for a vote on the measure until state analysts with the Joint Legislative Budget Committee can determine the veracity of the league’s research.
    The total hit to the state could be as high as $181 million, a figure that includes the $119 million estimated in losses to state coffers, roughly $48 million in revenues lost from municipal tax collections and $14 million in decreased revenue for schools, according to Ken Strobeck, the league’s executive director.

    Farnsworth and supporters of his bill have criticized that research, which the league acknowledges is a rough estimate.

  2. Check out the screen shot of the vote for TPT exemption for digital goods in this blog post. https://blogforarizona.net/taxcuts-deregulation-how-did-your-azhouse-rep-vote/

  3. Actually, the TPT exemption for digital goods passed with only 19 “no” votes (including me). We didn’t know the cost when we voted! That alone should have been a reason to vote “no.”

    There are corporate Democrats helping the Republicans pass multiple tax cuts and tax giveaways. And there are Libertarians voting “no” with Progressives.

    Only the capital gains tax cut broke along party lines so far. Check out my two blog posts about how the House voted on multiple bills. Those two posts clearly show who likes to give taxpayer money away.

  4. North Of The River

    The Lobbyist for CenturyLink(Disabled in a wheelchair) was about to call the Police on me in front of the State Capitol yesterday,because I had a few words with him because how bad service Centurylink offers the public……When they(like others) set up a tent on the front lawn of the State Capitol and offer FREE FOOD the the politicians,the regular public is left out the loop.

  5. Democratic Candidate Steve Farley would close 330 sales tax loopholes. See https://blogforarizona.net/governor-candidates-farley-and-garcia-will-restore-education-in-arizona/

    Farley pointed out that there are 1,300 teacher vacancies in Arizona. He called for a 20% raise in teacher pay. “There are classes doubled up because there are not enough teachers.”

    Farley said the teacher raises would cost $750 million, and funding would come from closing 330 corporate sales tax loopholes that bleed $13.7 billion from the general fund.