Sunday, April 11, 2010

Penny tax increase an unfortunate necessity


By Matt Brabb
Mogollon Connection Editor

The residents of Rim Country have learned first hand how deeply the “Great Recession” has impacted the ability of government at all levels to maintain services in the manner residents have become accustomed to.

In Payson, drastic cuts have been made to department budgets. Travel costs, capital equipment, office supplies, computer equipment, and street repair have all been scaled back. Most painful of all, mandatory furloughs have been imposed on all Payson town employees except the town manager. The furloughs amount to a 12.5 percent pay cut.

More recently, the Payson Unified School District announced lay-offs including two school principals, the curriculum director, and an athletic director. Even more ominous, school board members have intimated that lay-offs of teachers may be necessary in the near future as well. All of this took place despite the school override measure that voters overwhelmingly passed in last month’s election.

And when we turn our attention to the state budget for fiscal year 2011, things look even bleaker, if that is possible. It is easy to criticize how the state legislature has handled (not to say bungled) the budget crisis at the state capital, but it is worth noting just how big of a challenge state lawmakers face.

The state was facing a $3.2 billion deficit for FY 2011, before making draconian cuts to next year’s budget. Fiscal year 2010 saw a deficit of only $1.4 billion in comparison. The reasons for the crisis are many, including reduced revenues, the economy, constraints imposed by voters, and the federal government.

Consider that the state has lost 280,000 jobs since it hit its peak employment figure of 2.68 million jobs in August of 2007. Recent forecasts project that the state will not get back to the 2.68 million figure until 2014. That is an extraordinary amount of revenue lost by means of the personal income tax for the state of Arizona.

It comes to a decrease of 38 percent since 2007. Couple that with a decrease in revenue from the sales tax of 22 percent, and a decline in corporate income tax of 57 percent, and one can begin to see how Arizona has arrived in the dire financial straits it now finds itself in.

But the decrease in revenue is only part of the story. Tax reform shifted the burden of K-12 education to the state’s general fund, and a voter-approved initiative vastly expanded the state’s Medicaid program (AHCCCS). The recession itself has also contributed to a huge increase in the number of people who rely on AHCCCS for health care. In calendar year 2009 alone, 203,000 new members were added. State correction costs have also increased significantly as some 11,000 new prisoners have been added since 2004, at a cost of $405 million to the general fund.

If voters reject a temporary one-cent sales tax when they go to the polls on May 18, additional, drastic cuts to the state budget will be necessary. In local terms, as many as 25 positions could be eliminated from the Payson Unified School District if the measure fails.

The fact is, when the state legislature passed the 2011 budget that ends Medicaid for over 300,000 Arizonans, and kills the KidsCare program (which provided medical care for 47,000 children in Arizona), they did so with the assumption that voters will pass the one-cent sales tax increase.

If they do not, additional cuts to services to the tune of nearly $1 billion will be necessary. Sixty percent of the additional cuts are targeted at education, from kindergarten to the universities. In addition, the state's prison system, health-care services, the courts and public safety will all be in line for reductions if Prop 100 fails.

It will be fascinating to see how the matter plays out. Will voters kick in that extra penny on every dollar, or will they consign themselves, the state’s students, and their less fortunate neighbors to a future with far fewer state services.

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Anonymous said...

Maybe it's the accountant in me but I find it misleading to refer to any tax increase as a "one cent" increase. It's an attempt to trivialize it so people will support it because after all, it's only "one cent."

It's not "one cent." It's one PERCENT of sale, and it's about a 12% increase over the current tax rate.

I spend about $2000 a month on taxable purchases. So that tax increase will be two thousand pennies to me every month, twenty four thousand pennies every year.

Suddenly doesn't sound so trivial any more, does it?

I also recently paid $15,500 for a new car. After the tax increase goes into effect, someone buying a car for that amount will pay Fifteen thousand, five hundred additional pennies.

A tax increase is a tax increase. It might be worthwhile but let's call a spade a spade instead of calling it a teaspoon.

If you really want to look at it in the right perspective, the sales tax rate will go up about 12% (an additional percent on top of the existing 8+ percent is about a 12% increase in the tax rate).

Let's tell the truth so people can make an informed decision. Personally I think I'm paying enough in taxes.

Let's stop trivializing the subject with misleading terms like "one cent" and "penny." This is going to take lots and lots of DOLLARS out of the pockets of every person in this state. Dollars many of them can't spare.

Dan Varnes said...

Oh, BOY! "Let's tax our way out of a mess."

That's almost as ridiculous as "spending our way out of a recession."

It might as well be a law of physics: When you tax something, (anything!) you're going end up with LESS of it.

No one seems to want to look at the lessons of history... FULL SPEED AHEAD WITH TAXATION!