Arizona is being groomed for the eradication of income tax

14 May 2015 06:18 am
Posted by: Donna

Steven SlivinskiSteven Slivinski, from handout

Doug Ducey ran on the promise of eliminating Arizona’s income tax in 2014. It wasn’t taken seriously by most political observers and the candidate himself walked his proposal back and characterized it as an aspiration when pressed on how it was possible to implement it.

“No one’s talking about eliminating the income tax,” he said. “I’ve talked about an ever-improving tax situation, where year after year, we have an improving climate and if we can get it as close to zero as we possible, that’s a positive. Because the nine states that don’t have an income tax have double the job growth of the highest-tax states.”

He later said his talk of driving the income tax rate to zero is a “direction.”

His campaign literature says otherwise. In his “My Pledge to the People of Arizona,” which is online and distributed to voters, Ducey’s No. 1 promise if he’s elected is to “Submit legislation to reduce taxes every year, with the goal of eliminating personal and corporate income taxes in Arizona.”

On April 30, he told The Arizona Republic eliminating the taxes is a “long-term goal, it is one I embrace.”

The Republic asked Ducey on Tuesday evening to clarify the remarks he made during the debate in light of his campaign literature and prior comments. Ducey said, “Elimination is a severe word. Reduction and improvement (in the tax code), people will get that. We will do that over a couple of legislative sessions.”

Now that Ducey has been elected, elimination (that severe word) of the income tax appears to be fully on the table. Keep your eye on a guy named Steven Slivinski. He’s a former “senior economist” for the Goldwater Institute (huge red flag) and he has nabbed himself a spot as a “senior research fellow” at ASU’s (wait for it) Center for the Study of Economic Liberty (freedom!). If you guessed from the name of that endeavor that it was funded by the Koch Brothers without looking it up, you win the door prize.

Slivinski explained in an op-ed to the AZ Republic how this income tax-free nirvana can come to be:

The income tax can be phased-out over six or seven years if policymakers consider a combination of three broad steps.

First, maintain spending discipline by expanding the state budget no more than 2.3 percent annually and use the excess revenue to lower the income tax rate each year.

Second, the Legislature must reform spending programs, including urban revenue sharing. Arizona city governments automatically receive a chunk of income tax money annually without oversight. This lack of accountability leads to wasteful spending at the city level. Reforming this program by making sure the shared revenue only goes to the neediest cities would result in substantial state budget savings.

Additionally, the Legislature should amend the current law to forbid a city-level income tax. City leaders could still ask voters to raise local taxes to fund any spending increases. This would encourage more accountability in city government because leaders couldn’t push the costs onto taxpayers who don’t live in the city.

The result will be different in each city, but as long as voters have a choice as to whether to raise taxes or find cost savings, government spending levels will better reflect the preferences of each city’s voters.

Finally, Arizonans should be given the opportunity to vote to temporarily raise the state sales tax by no more than 1 cent. The proceeds of this increase would go toward reducing the income tax rate until it reaches zero.

Once the income tax reaches zero, this additional 1 cent sales tax rate add-on could be eliminated as well, bringing it back down to 5.6 percent. Spending discipline over the income tax phasedown period and robust economic growth are essential to making this part of the reform possible.

My cursory reading of Slivinski’s white paper, which was just released on Tuesday, indicates that he really downplayed the extent of the spending cuts he calls for (albeit vaguely) in his Republic op-ed. The five scenarios he proposes for abruptly or gradually ending the income tax suggest far more drastic cuts to government services than Slivinski is letting on to the public.

Maintaining spending discipline might be the single most important aspect of any approach to tax reform.

Of course it might be!

A commenter to the Republic wryly pondered how tuition tax credits to rich parents would be maintained if they no longer had income tax against which to claim them. No worries, Slivinski has that one covered (from Appendix B in the white paper):

The donations that trigger these credits are best seen as a private source of funding for expenses that, in the absence of the donations, would have to be financed by the state government or the school district. So, unlike other tax credits that are meant to subsidize activities, these credits are more properly thought of as reimbursements for people who used money they would have paid in taxes otherwise and directed it instead to a specific public service. This, by definition, frees up room in the budget of those respective governmental entities and the credits are a way of taking some of that surplus and delivering it back to taxpayers.

Yet, property taxes pay finance the vast majority of school budgets so it’s peculiar to administer this program
through the income tax. So, in a world in which there is no income tax, state law should be changed to allow
property tax payers to declare the same credit against their property tax liability.

Slivinski definitely know who pays him. But wait, aren’t these “school choice” tax credit schemes constantly sold as a way for poor families to gain access to better schools? And don’t many of those poor families rent, and not own, the places in which they live? How would such families possibly benefit from Slivinski’s proposal to funnel all the credits to property taxes? Looks like he gave away the game there. Oops.


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