Arizona’s Options

July 30, 2009

Arizona legislators have been debating options for closing their estimated $3.4 billion 2010 budget shortfall. And those options include raising taxes, cutting taxes, and selling the capitol.

Gov. Jan Brewer wants a one percent sales tax increase (currently 5.6% at the state level) phased out over three years-she vetoed budget legislation earlier this month because it was not included. New Republican legislation, to be debated today, includes a November referendum on the sales tax increase. Also included in the budget compromise is $580 million in spending cuts, $400 million annually in tax cuts split between individual income taxes and corporate income taxes, a three-year cap on government spending, and the increasing of various state “fees” (taxes).

At the Goldwater Institute in Phoenix, economist Byron Schlomach noted some spending cuts that should take precedence over harmful tax increases-written when the budget shortfall was only $1 billion. Another Goldwater report by economist Art Laffer (using Tax Foundation data) recommends lower taxes and a flat tax rate on either consumption or income to encourage growth, competitiveness, and efficiency.

Lawmakers are also discussing the sale of government buildings to raise revenue. The process is known as SILO (sale-in-lease-out), whereby the government sells public buildings to private investors and immediately leases them back. It has been popular with state governments in need of quick cash and, as the Tax Foundation noted before, has been used to provide a way for the government and private companies to take advantage of tax breaks on capital depreciation not available for government-owned structures (though this tax scheme was banned in 2004).

Arizona does have options. They can either pass good tax policy and spending cuts for long-term sustainability, or increase taxes and hope the recession ends soon.

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