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Robb: Price of Az tax hikes – lost jobs

To date, the discussion about whether to increase state taxes has focused on the effects of budget cuts.

This makes for a compelling political narrative. The cuts are deep. State workers are losing their jobs and being furloughed. Program beneficiaries are losing services.

These people are identifiable. They can be found and quoted. They can organize and protest.

There would, however, be adverse consequences from raising taxes as well. The Goldwater Institute recently provided useful perspective by trying to quantify those adverse consequences.

According to its analysis, increasing the state sales tax to raise $1 billion would cost more than 14,000 private sector workers their jobs. It would cost the state $1.2 billion in private sector output.

Raising the income tax would be even worse. It would cost more than 26,000 jobs and reduce output by $1.6 billion.

As with the conclusion from any econometric modeling, the specific numbers can be quibbled over. But not the headline point:

If the state raises taxes, some private sector workers will lose their jobs, all will experience a reduction in after-tax income, and private sector production will diminish.

Unfortunately, this makes for a less compelling political narrative. Identifying the private sector workers who lost their jobs because the state raised taxes is impossible in retrospect, much less in advance.

They exist, nonetheless.

The debate over raising taxes also suffers from a myth and a lack of perspective.

The myth is that the state is in this fix because of all the tax-cutting that has taken place since the early 1990s. Some highly careless advocates even assert that if the state had not changed tax rates, state revenues would be $2 billion higher today.

That assumes that economic growth would have been the same even at the higher tax rates. The magnitude of the relationship between economic growth and tax rates is hotly debated. But virtually no one believes that it is zero.

In 1993, state tax revenue was $3.6 billion. By 2007, when it peaked, it had grown to $9.2 billion, or an increase of 156 percent, despite the reductions in tax rates.

That vastly exceeded the intervening increase in population and inflation, which was 95 percent. And it approached the increase in personal income, which was 180 percent.

For state tax revenues to be $2 billion higher, they would have had to have increased considerably faster than personal income. The claim that, absent tax rate cuts, this alternative reality would have actually happened is, to put it mildly, highly implausible.

The lack of perspective is the assertion that Arizona is a low-tax state. Arizona is not a high-tax state. We are instead a state that taxes roughly proportionate to our income.

According to the Tax Foundation, Arizona ranks 35th among the states in per capita income. Contrary to another myth, this isn’t because our economy produces disproportionately low-paying jobs. It’s because demographically, we have proportionately more retirees, kids and immigrants.

Arizona ranks 39th in state and local spending per capita. So, slightly below our income ranking, but not much.

We also rank 39th in individual income tax burden, but 24th in corporate income taxes. We rank high in sales taxes, ninth. We’re 35th in property taxes, but that’s misleading. Our individual property taxes are low, but our business property taxes are high.

So, it’s hard to make the case that there is a lot of spare tax capacity relative to our income.

The state’s budget deficit results primarily from a decline in private sector production. Raising taxes would additionally reduce that production.

Given the problem, that hardly seems a sensible remedy.

Robert Robb, an Arizona Republic columnist, writes about public policy and politics in Arizona. E-mail: robert.robb@arizonarepublic.com

Citizen Online Archive, 2006-2009

This archive contains all the stories that appeared on the Tucson Citizen's website from mid-2006 to June 1, 2009.

In 2010, a power surge fried a server that contained all of videos linked to dozens of stories in this archive. Also, a server that contained all of the databases for dozens of stories was accidentally erased, so all of those links are broken as well. However, all of the text and photos that accompanied some stories have been preserved.

For all of the stories that were archived by the Tucson Citizen newspaper's library in a digital archive between 1993 and 2009, go to Morgue Part 2

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