On the Senate floor yesterday (during the doomed referral, and then combined referral and tax package votes), a conservative lawmaker questioned how those who had been opposed to the TIME ballot initiative last election cycle could now support the tax package that includes a sales tax referral. The TIME initiative was a ballot proposition that would have increased the state sales tax rate from 5.6 percent to 6.6 percent (a 17.8% increase) to fund roads, freeways, light rail, commuter rail, open space conservation, beautification enhancements, and habitat preservation.
As the main opponent of the TIME initiative and a supporter of the tax package, we’re happy to breakdown why we opposed one and not the other.
Before the tax cuts were added to the tax package, we were opposed to the governor’s sales tax increase referral just as we opposed the TIME initiative. The Club continues to believe that a tax hike in the middle of a recession is an economic-killer. We do not want to see Arizona have the 5th highest sales tax in the nation without offsetting business-inducing income tax cuts. While we still oppose the sales tax increase, the benefits of the tax cuts are worth the risk of the sales tax passing. The tax cuts are significant and permanent.
If TIME had made it to the ballot in November 2008 and passed, the budget problems the state is facing would be far worse. TIME would have increased annual spending by more than a $1 billion a year, and this spending would have been voter-protected and therefore outside the purview of the legislature. With sales tax revenue falling drastically, there’s no question TIME’s earmarked funds would have exacerbated Arizona’s structural deficit.
The Club was one of only two groups opposed to SB1403, income and property tax subsidies for renewable energy manufacturers. We were outgunned about 25-1 with hordes of lobbyists from economic development groups, cities, and government agencies pushing the bill. The price tag: approximately $350 million. The bill sailed through both houses despite our argument that the $350 million would be better spent on our corporate income tax cut (SB1324), which would benefit all companies, not just industries favored by government. During the House Ways & Means committee hearing on SB1403, a Democrat House member actually said he wouldn’t vote for the bill if the tax subsidies went to bicycle companies (as an example). We’re sure the folks at the Titus bicycle manufacturing plant in Tempe were pleased to hear that.
The band of lobbyists pushing SB1403 for the past year wooed many otherwise solid pro-growth Republican lawmakers to vote for it by touting the jobs the bill would create (House votes; Senate votes). This is very appealing in the middle of a recession with unemployment figures rising. Their argument was that it’s better to do something than nothing. But that’s often not the case. First, do no harm. What about the jobs lost at companies that are saddled with the burden of paying more taxes so that others can pay none?
And what about those new jobs? We hope for the state’s sake that GPEC and others are right, that SB1403 will result in a wave of new “green jobs.” But we can’t help but be a bit pessimistic. From today’s Wall Street Journal Political Diary:
“Nothing is perhaps more pathetic than the exertions of economic developers and politicians grasping at straws, particularly during hard times . . . All told, green jobs constitute barely 700,000 positions across the country — less than 0.5% of total employment. That’s about how many jobs the economy lost in January this year. . . . Green power is expensive and depends on massive subsidization, with government support levels at roughly 20 times or more per megawatt hour than relatively clean and abundant natural gas. . . . A recent study on renewable energy subsidies on the Spanish economy found that for every “green” job created more than two were lost in the non-subsidized economy.” — Forbes columnist Joel Kotkin on why green jobs can’t save the economy.
Because you can’t separate politics from policy making, some votes are just downright tough. You can’t be in a position to cast a vote unless you survive the political process by getting elected in the first place, so all votes are considered through a political lens, no matter your ideology. It’s not wrong to consider the political consequences, and it would be crazy not to, but I believe that an overwhelming majority of sound policy votes also are sound political votes. I also believe that members of both Parties routinely miss-calculate and miss-judge opportunities to make good politics out of good policies. Arizona House Bill 2015 offers one such opportunity.
Included in HB 2015 is a provision to refer a one cent sales tax increase for each of the next two years. In 2012, that tax would drop to a half-cent for a year. After that, the tax sunsets and the rate is back to where it is today. This is a big deal for fiscal conservatives who oppose higher taxes. We at the AZFEC opposed a call for a tax increase to help balance the budget. We did this in December of 2008 as the chorus started warming up their vocal chords (editorial boards, college professors, etc.). We became more forceful in our arguments when Gov. Brewer announced her support of higher taxes on March 4. We kept up our opposition during the budget session when supporters of the tax hike opposed spending reductions to go along with it. The tax hike was only to sustain high levels of spending. Budgets were passed – without the tax referral – and vetoes ensued.
Then things got weird. Fiscal conservatives learned how to negotiate. In exchange for the tax increase referral as requested by the governor, conservatives put together one of the largest tax cuts in Arizona history. And the governor agreed. So now the trade is a possible and temporary sales tax increase for a guaranteed and permanent reduction in corporate and personal income tax rates and the permanent repeal of the state equalization tax. This is good policy, and it’s not bad politics, either.
These tax cuts don’t come along every day. So although this is a tough political vote for some, we think the sound policies behind it can also make for good politics. Lawmakers should support this deal. Click here to read more of our arguments in support of HB 2015.