By Robert Robb
The Arizona Republic
March 19, 2000
The prospect that an initiative abolishing Arizona's individual and corporate income tax may very well make November's ballot has the state's political establishment in a quandary: should they break out in a sweat or in hives?
The initiative is timely, since it is clear that tax-cutting sentient at the state capitol is running at low ebb.
During most of the 90s, tax reductions were given primacy in state policy. Individual income tax rates were reduced by 25 percent. Property taxes were also cut, and toward the end of the decade Arizona's relatively high corporate income tax was finally trimmed.
But tax cutting is no longer at the top of the agenda. The last round of tax cuts was made dependent on state revenues exceeding expectations, as though tax cuts are a consequence, rather than a cause, of economic growth. And this session is devoted to spending. Even Speaker of the House Jeff Groscost has backed off giving some of the tobacco settlement back to taxpayers.
The so-called Taxpayer Protection Act of 2000 is tax cutting with a vengeance. Individual and corporate income tax revenue currently funds about half the state's $6 billion annual budget. Under the initiative, all that revenue would go away as of January 1, 2005.
That would give the state four years to figure out what to do, how much of the revenue to replace and from what sources.
There are strong philosophical and economic arguments for abolishing the income tax.
The income tax gives the government the right know how much you make and how you make it. This, in and of itself, is an invasion of privacy and liberty.
The income tax, particularly a progressive one, also inhibits productive economic enterprise. Arizona would be a freer and more prosperous state without one.
Replacing the revenue, although a daunting task, is not an impossible one, particularly at the state level. Doubling the existing five percent state sales tax would do the job. The impact on the sales tax rate could be moderated by finally confronting the need to expand the sales tax base to include services and real estate transactions.
And that's assuming all the revenue would need to be replaced. A faster-growing economy would increase revenue from other sources to some extent. And one of the virtues of abolishing the state income tax is that it would force a re-examination of existing state programs.
If all the Taxpayers Protection Act did was abolish the state income tax, it would put before voters a useful and highly interesting question. Which is more important: a sensible tax policy, or protecting existing government revenues and programs.
Unfortunately, as with so many of these initiatives, there are additional provisions that complicate the issue, and make the decision of voters more difficult.
The initiative would also require that all tax increases, including those to replace revenue from the abolished income tax, be approved not only by a two-thirds vote of the Legislature, which is already required, but also by a vote of the people.
There is a problem in Arizona, in that courts have held that tax increases aren't subject to referendum. A constitutional amendment to correct that is hung up in the Legislature. People who want to defeat the Taxpayer Protection initiative ought to rush to get that proposal unhung and on the ballot this November.
Allowing voters to refer tax increases is sensible public policy. Requiring a public vote on all tax increases is an assault on representative government.
The Taxpayer Protection initiative also revives a boneheaded idea voters wisely rejected last election: publishing candidate pledges to abolish the federal income tax on the actual ballot. If tax nuts get commitments on their issue put on the actual ballot, every other cause will be right behind. And ballots will become an incomprehensible clutter. It's too bad that an important public policy debate and choice will be marred by overreaching populism and ballot pollution.
But better a less than perfect debate about sensible tax policy than the exclusive concern with spending toward which the state capitol appears to be drifting.
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Subj: Sunday's OpEd
Date: 3/19/00 9:55:25 AM Pacific Standard Time
From: DR4LIBERTY
To: Bob.Robb@ArizonaRepublic.com
Dear Bob--
Thank you for pointing out some of the beneficial features of the Taxpayer Protection Act of 2000. I am grateful for your mentioning that there are strong philosophical and economic arguments for abolishing the tax. And the revenue lost by abolishing the tax will not necessarily equal the revenue that is currently generated by the tax. As you made clear, the increase in economic growth resulting from repeal of the tax will generate increased revenues (as we saw in the '90s, when a 30% cut in the income tax rate, as well as cuts in property taxes, has led to a budget surplus). And there are over 600 exemptions in the state sales tax, totalling over $2.3 billion/year (our state income tax generates $2.5 billion) that can be re-assessed before even considering any kind of increase in the state sales tax to offset any loss of income tax receipts.
You also are correct in pointing out that the state's political establishment, all of whom feed at the trough to one degree or another, will reflexively react in opposition to the notion of repeal of the tax. But they should relax: there are many states much mre populous than ours, with larger state budgets, more complex social problems, and larger state-subsidized social "safety net" programs, that don't have an income tax. And they have sales tax and property tax rates comparable to ours. States like Florida, Texas, Washington, and Tennessee (which manages to fund "TennCare," a universal health coverage program, without an income tax). I am certain that in 4 year's time, our legislators can learn from these states and adopt their best methods from them. Then again, here's an interesting idea: they can prioritize and decrease spending!
But two important points you made need correction:
1. You imply that the provision of our initiative that requires voter approval of all tax increases would not pass state constitutional muster. But the provision IS AN AMENDMENT to the state constitution. In fact, all three provisions of The Taxpayer Protection Act of 2000 are amendments. So your concerns are unwarranted. Furthermore, you seem bothered by the fact that referring ALL tax increases to the voters would threaten representative government. While we agree on the merits of representative government, it is obvious that our representatives have let us down in the area of tax policy. We can't believe them. They no longer represent us--they represent the special interests who lobby at the Capitol for their share of the loot collected from the taxpayers. Fortunately, Arizona's Founding Fathers anticipated that the state legislators might, from time to time, betray their trust. So they allowed for the initiative and referendum process. Our state is not a pure representative democracy, but rather a hybrid of direct and representative democracy. When our representatives regain the trust of the people, then it may not be necessary to require such matters as tax increases to be referred to the voters. In the meantime, we of the Taxpayer Protection Alliance believe it is important to place liberty ahead of process. So we don't share your misgivings about this feature of our initiative.
2. The "boneheaded" idea of publishing pledges to abolish the federal income tax received the enthusiastic support of US House Ways and Means Chairman Bill Archer, Rep. Billy Tauzin, Arizona Congressmen Matt Salmon and Bob Stump, and State Senate Majority Leader Tom Patterson when it was proposed in 1998. It is simply a restatement of the points made in the preceding paragraph, applied to our federal representatives. Let's face it---they are more locked into the the trough-feeding, horse-trading, "rent-seeking" status quo than are our friends in the state legislature. There is no way they are ever going to give the people FUNDAMENTAL, systemic tax reform unless they are pressed. The income tax is their money engine. Having a pledge system helps to press them. It isn't perfect, but it is one more way we can try break the "demosclerosis" and get some responsible conduct from those who are purported to represent us. To worry about "ballot clutter" is, once again, to put process ahead of principle. Our guiding principles hold liberty as the primary, and government as the supposed means to that end.
Sincerely,
Dr. Jeff Singer
Treasurer, Taxpayer Protection Alliance