Legislators cautious on temporary tax hike

State lawmakers from both parties are taking a guarded — if not outright wary — stance on a possible special election this spring for a temporary hike in the sales tax. House Speaker Kirk Adams, R-Mesa, said he fears the effect of a 1-percent hike on top of the state’s current 5.6 percent sales tax rate, even if it is only temporary.

“Raising taxes, particularly that substantial an increase during a time of deep recession, could be dangerous for the economy,” he said. Adams said he wants to proceed “very carefully.”

Senate Minority Leader Jorge Garcia, D-Tucson, said he’s not keen on hiking sales taxes while the Republican-controlled Legislature pushes ahead with plans to permanently eliminate the state property tax. That move, which would forego $250 million in revenues, would mean greater relief for businesses than homeowners.

But lawmakers from both parties agreed that Arizona’s overall tax structure is in need of being revamped.

The idea of higher taxes is being weighed by Gov. Jan Brewer as she considers how to deal with a possible $2.4 billion deficit this coming year.

Lawmakers, relying on a combination of spending cuts, taking money from special funds and anticipating some federal stimulus dollars, just plugged a $1.6 billion gap between revenues and expenses this year.

But that involved some major reductions in services. And some new projections show even that won’t be enough to bring the budget into balance.

Gubernatorial press aide Paul Senseman said Brewer is considering “all options.” Senseman said Brewer is taking nothing off the table, including the idea of asking voters to hike taxes.

Taking the issue to the ballot is likely the only way to make it happen.

It requires the votes of two-thirds of lawmakers to hike taxes themselves; more than a third of lawmakers have signed “no new taxes” pledges.

Sending the issue to the ballot, however, needs only a simple majority. And punting the issue to voters could prove more politically acceptable.

“I’m one of those who signed the pledge,” said Rep. Adam Driggs, R-Phoenix.

And Driggs said it is proper for Brewer to consider all options. But he said he “would have to know a lot more” about the plan before he would consider voting for it.

A penny on the state sales tax would raise about $1.1 billion a year. But if cities get a share of the new levy — as they do of the current tax — the net take drops below $900 million.

One element of any debate would be how long any temporary levy would last. Legislative budget staffers are predicting that revenues will not return to pre-recession levels until at least 2012.

Some legislators immediately put themselves on record in opposition.

Sen. Ron Gould, R-Lake Havasu City, said his district borders Nevada and California, both with lower sales tax rates. He said raising Arizona’s rate “will drive people to Las Vegas” to make major purchases.

“My merchants won’t be able to make a living because a bad decision by the Legislature will have driven their business into other states,” he said.

And Gould said some Arizonans already are living “on the margins” who cannot afford to pay any more.

Democrats, in general, do want to generate more revenues rather than making further cuts in education and social services. But they’re not anxious to jump on a plan focused solely on higher sales taxes, paid by consumers, particularly if it’s just temporary.

“Two years from now, we lose that revenue. Where does that get us?” asked Rep. Chad Campbell, D-Phoenix. He wants a comprehensive “tax reform” package.

He said that means a “broader and stronger tax base.” And that includes reviewing — and potentially repealing — exemptions that some types of sales have from the tax and other special tax breaks for various businesses.

Campbell also said it makes no sense to hike sales taxes when the Republican majority has made permanent repeal of the state property tax a priority.

That levy was suspended for three years in 2006, when the state had a surplus, in a political deal between then Gov. Janet Napolitano, a Democrat, and the GOP-controlled Legislature. It will return automatically this fall without legislative action.

“If we find other revenue sources to generate revenue, then that’s something that I think would be on the table,” Campbell said. “Until we find that other revenue, which we’re looking at, we can’t support that.”

Repeal of the property tax has become a priority for Republicans because it hits businesses harder than homeowners.

First, businesses are assessed for tax purposes at more than twice the rate as residential property. And that tax also is assessed against all their equipment, ranging from major presses, fabricating equipment and computers down to desks and file cabinets.

That structure, according to the Arizona Chamber of Commerce and Industry, makes the state less attractive for manufacturers, who have expensive equipment.

Adams said he does not want any focus on a temporary tax hike to short-circuit the need to revamp business property taxes.

“When we come out of this session … whatever tax system we have in place serves to lay the foundation to diversify the economy away from so much reliance on housing and real estate,” he said.