What the debate over the flat tax misses is how Arizona taxpayers were duped in 1992
Posted by: Donna
Tomorrow’s special session will give proponents of a flat state income tax the opportunity to raise the issue again after it failed to make it onto last Tuesday’s budget. Goldwater Institute’s Byron Schlomach and former Napolitano Chief Deputy George Cunningham debated the issue in today’s Republic.
Cunningham argues (correctly) that a flat tax would be regressive and cause the state to become even more dependent on sales tax revenue, thus exacerbating the regressive nature of our tax structure. I was disappointed that Cunningham glossed over the issues raised over the elimination of deductions for mortgages, health expenses, and retirement accounts. He said that the tax could be “applied to existing income-tax base or it can be applied to an adjusted base in which certain deductions are eliminated…”. That could be an indication that there are discussions to include the current deductions, in which case this flat tax could end up costing the state far more than the projected $450 million.
Schlomach evokes Reagan, the Laffer Curve, and Marx. He makes the laughable assertion that tax rates disincentivize the wealthy becoming wealthier. He also says there’s a study, a collaboration between Goldwater, the Arizona Free Enterprise Club, and Dr. Laffer, that shows that a flat tax would create 112,000 new jobs. He claims that a flat tax will be revenue neutral and disputes the $450 million decline estimate. Schlomach, unsurprisingly, does not even mention the elimination of deductions and the possibility of some people paying more in a flat tax scenario.
What does this have to do with 1992? Well, I didn’t live here then but that was the year that Arizonans voted for Prop 108. Supporters called it the “It’s TIME!” initiative. It was “TIME!” to put a stop to tax increases and the oppressive business tax climate of Arizona. In the publicity pamphlet, there are several arguments, by organizations and individuals, for Prop 108 and (with the exception of one obligatory statement by the Legislative Council) none against. Every one of the entreaties to vote yes talks about taxes, tax increases, and “new” taxes. Not one of them stated what the constitutional amendment actually did. This is what people voted on:
Amending the Arizona Constitution to require a two thirds vote of the legislature for passage, and a three-fourths vote to override a Governor’s veto, of any legislation that would provide a net increase in state revenues through certain changes in taxes, tax rates, tax deductions, fees or assessments.
A “yes” vote shall have the effect of requiring a greater number of votes in the Legislature to pass legislation providing for a net increase in state revenues.
A “no” vote shall have the effect of continuing to permit the Legislature to increase revenues by a simple majority vote.
This is where the voters were duped. Taxpayers were never promised that the state couldn’t raise their taxes, though it’s perfectly understandable that they got that impression. Here’s the thing, they can’t raise revenues without a 2/3 majority. But they can raise your taxes to give someone else a tax cut as long as it doesn’t increase revenues, and even if it ends up decreasing them. That means it’s perfectly within the bounds of the state constitution, as amended in 1992 by Prop 108, for the Legislature to pass, and the Governor to sign, a flat tax that eliminates the deductions for 401ks and medical expenses that many middle income Arizonans take, and effectively raises their taxes.
I have to admit I didn’t understand this until very recently and I honestly wonder how many of the grassroots community groups and leaders who pushed Prop 108 back in ‘92 knew what they were supporting. Tom McGovern, who was listed as the Former Chairman – ENOUGH! Repeal the Tax Increase Phoenix promised: “It’s TIME will require a 2/3 majority for new taxes.” Uh, not quite, Tom. It requires a 2/3 majority for any new tax that raises revenue. If they wanted to pass a new tax on 90% of the state so that they could completely eliminate income taxes on the top 10%, they can do it with a simple majority so long as it doesn’t increase revenues.
I’d say it’s time that the taxpayers of Arizona were made aware of what a bill of goods they were sold back in 1992.
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It is nice to know that Arizona voters have been getting shafted for years, and that the current circular fiscal firing squad isn’t a new phenomenon.
It’s also worth noting though that the Symington-Brewer (that’s right, they passed with the help of then Senate majority-whip Jan Brewer) tax cuts in the mid 1990’s are now costing the state $1.5 billion annually in revenue. And thanks to prop 108, the reckless tax cutting that put things on a shoestring budget even in the best of years, can’t be reversed. Sort of like we’ve started driving foward down a road that has become a small trail (a stream bed?) and we now can’t turn around so we have no other option than to continue to go forward even though we know darn well that the odds of getting out of here intact are slim to none.
Brewer wants a sales tax vote that would raise $1 billion. Well, if she hadn’t been so quick to do Fife’s dirty work a decade and a half ago, she wouldn’t need the extra dough today.
The reverse, of course, is true. Democrats could propose raising taxes on the wealthy and lowering taxes on the poor and middle classes and this would be OK so long as it was “revenue” neutral. So why don’t they? Oh, I see. That would be “class warfare”, wouldn’t it?