President Obama’s fiscal year 2015 budget proposes to increase taxes on individuals by over $820 billion and on businesses by about $500 billion, for a total of over $1.3 trillion in new taxes over the next ten years....
- The Tax Policy Blog
- Nothing is So Permanent as a Temporary Tax Increase
Nothing is So Permanent as a Temporary Tax Increase
A new group in Arizona is raising money for a ballot initiative in Arizona to continue the temporary sales tax increase that passed back in 2010. The group, known as Quality Education and Jobs, filed paperwork last Friday to start raising money for the measure.
Let's recap the 2010 experience and see if we can learn any new lessons. In a special election on May 18, 2010, Arizona voters overwhelmingly (64.3 percent in favor) voted to increase their statewide sales tax from 5.6 percent to 6.6 percent. The measure was heartily endorsed by Governor Jan Brewer (R), who argued that the hike was absolutely essential to avoid an impending budget crisis that would lead to cuts in education, health care and public safety. In her words, without a sales tax hike, "2012 will be a major catastrophe."
The measure took effect on June 1, 2010, and Arizona vaulted from a rank of 9 in our state and local sales tax study to a rank of 3 (you can compare the reports in 2009 and 2010, and see our blog coverage here and here). After accounting for local sales taxes, the average sales tax rate consumers saw in Arizona jumped from 7.92 percent in 2009 to 9.01 percent after the ballot measure.
Many Arizonans, even some which might normally be against tax hikes, supported the measure because it was temporary, and after all, the money was going to education. Others, including my former colleagues at the Goldwater Institute, argued that the state had a poor track record on sending the revenues where they originally claimed they would. My former boss Byron Schlomach warned the readers of the Arizona Republic before the initiative:
"Ten years ago, Arizonans voted to raise the state sales tax with the commitment that the extra money would go to classroom spending. But, earlier this year, the state auditor general reported that just over half of that money is getting into the classroom."
This story is illustrative of the folly of being duped by "temporary" tax increase proposals. Politicians often make the case that quick patchwork is needed to save from impending disaster (see our work on the "Washington Monument Ploy"), but once additional revenues come in to the government, public officials find new uses for that money.
Milton Friedman used to say, "nothing is so permanent as a temporary government measure." I'm tempted here to paraphrase him and say "nothing is so permanent as a temporary tax increase." Hopefully, Arizona will be an exception to the rule.
More on Arizona here.
Our latest state and local sales tax study here.
Buy this blogger a cup of coffee!
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official weblog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.