Governor candidates take aim at tax system - East Valley Tribune: News

Governor candidates take aim at tax system

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Posted: Tuesday, October 24, 2006 11:03 am | Updated: 2:42 pm, Fri Oct 7, 2011.

Ask Arizona politicians about tax cuts during an election year and with few exceptions the answer is predictable — they’re for them.

As the Nov. 7 election approaches, the three candidates for governor do, indeed, look favorably upon the idea of allowing Arizonans to keep more of their money. The difference among the candidates, however, lies in the depth and timing of tax reductions, not whether they support them.

Libertarian Barry Hess offers the most basic and boldest plan. If elected, he would kill the income tax as soon as possible, he said.

Republican Len Munsil agrees with the concept, but not the pace. The selfdescribed conservative proposes a much slower death for the income tax. He would phase it out over the next decade — starting with a 10 percent reduction upon taking office.

Democratic Gov. Janet Napolitano is the exception because she favors a wait-andsee approach to any big changes in the tax structure. It’s not that she’s opposed to the idea of tax breaks; she often reminds voters that she signed a Republicansponsored $300 million tax-cut package this year, the largest in state history.

But the governor said she has other priorities for the next four years, such as spending more money on education and to develop a long-term plan to handle the state’s population growth.

Yet supporters of tax cuts argue that lowering taxes stimulates the economy by indirectly creating new jobs and increasing state revenues. They say new tax revenue would balance the budget pressure of the original tax cuts and eventually generate more than enough money to pay for state services.

Napolitano, however, said the Arizona economy already has enough steam in its engine.

“Look, this economy has plenty of stimulus in it,” she told the Tribune on Friday. She pointed out a recent study that found Arizona has led the nation in economic growth for the past two quarters.

Likewise, Napolitano said cutting the income tax too deeply could have tough consequences for the state’s operating budget.

The income tax accounts for nearly 40 percent of the state’s General Fund.

Without that revenue, Napolitano said the state would be forced to make tough choices, like shutting down schools or prisons.

Munsil disagrees.

He said tax cuts would put more money into that hands of Arizona residents and act as a economic stimulus.

“It is simply a scare tactic to oppose tax-rate cuts by arguing that vital state services will be affected. Revenues have increased as we have reduced tax rates over the governor’s objections,” Munsil said Friday.

Hess favors starving the government. Less cash would compel the state Legislature to get out of the business of funding entitlement programs, Hess said.

“They’re just special interest voting blocs, anyway,” he said. “Of course programs are going to go away. I’m looking to change everything.”

So far, only Alaska has successfully abolished the state income tax. Several other states have never imposed an income tax.

Still, Hess said he would consider boosting the state’s sales tax to make up for the fiscal shock. Currently, the state’s sales tax rate sits at 5.6 percent. Hess said he would be comfortable moving it up to 9 percent.

The personal income tax is one of three significant revenue sources for the state’s General Fund.

The other two are the sales tax, which accounts for 46 percent of state revenues, and the corporate income tax, which makes up about 9 percent.

While the candidates disagree about the impacts their various tax policies would have on the state’s pocketbook, local economic experts agree on one thing: A sharp and sudden cut to the income tax would have a negative effect on government programs.

Abolishing it would tie the state’s economic fortunes too closely to the ups and downs of the economy by relying too heavily on sales taxes, said Tom Rex, a professor at the W.P. Carey School of Business at Arizona State University.

That, in turn, could have an effect on the state’s bond rating, which determines its borrowing power.

He favors a diverse tax policy that doesn’t rely too much on one tax. “The fact is we’re running a surplus right now. But that’s going to end someday,” he said.

He credited the state’s $1 billion dollar surplus in the most recent budget round to the housing market, which was one of the hottest in the country but now appears to be cooling off.

Noah Clarke, an economist at the conservative Goldwater Institute, said eliminating the income tax would bring shortterm consequences. But in the end, the state would be better off for it, he said.

“I think the state needs to re-evaluate its priorities and get out of a lot of of the things they’re into right now,” he said.

Likewise, he rejects the idea the state would have to cut funding to schools and prisons. “I think there’s a lot of things you can cut before you get to that.”

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