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Budget myth No. 1: Tax cuts led to deficit



The editorial pages of Arizona’s newspapers are bemoaning the effects of recent state spending reductions and vilifying Gov. Jan Brewer and the new legislative majority for considering further spending cuts.

The underlying conclusion is that Arizona must raise taxes and sustain state spending at prevailing levels. That conclusion, however, is based on several myths.

Myth: Tax cuts caused the current state budget deficit.

Reality: Restoring revenue from the 2006 income and property tax cuts would, at most, bridge $500 million of the $3.2 billion deficit for the next fiscal year. More realistically, state politicians would have spent the extra money during the boom years, pushing baseline spending to even higher levels, resulting in even larger deficits.

Myth: The national economic crisis caused the deficit, so over-spending is not to blame.

Reality: During every economic downturn, state revenues fall below the trend for population growth plus inflation coming out of the previous recession, meaning spending faster than that rate is inherently unsustainable.

If Arizona had limited spending to the rate of population growth plus inflation since 2003, we could have used the rainy day fund and limited sales of state assets to easily bridge this deficit.

Myth: Gov. Janet Napolitano is gone now, so we can’t blame her for the deficit.

Reality: Napolitano was the main force pushing spending growth to more than twice the rate of population growth plus inflation. During the past six years, Napolitano and her legislative allies effectively neutered conservative legislators who argued for spending restraint.

Indeed, in 2004 and 2008, the governor’s budget was passed by majorities of Democrats and a handful of liberal Republicans.

Myth: There is no fat left to cut in the state budget.

Reality: Most services provided by government end up costing at least twice as much as they would if they were provided by the private sector. As much as half of state expenditures may be inefficient.

K-12 education – the state’s largest expenditure – is a good example. According to the state superintendent’s annual report for 2008, K-12 funds from all sources total $9,700 per student per year. Charter school funds are $7,800. By comparison, the Goldwater Institute reports, the average at Arizona private schools is under $6,000.

Another example is road construction. According to the Reason Foundation, the life-cycle cost to finance, build, operate and maintain a private concession toll road is sometimes as little as one-third the total cost for a typical design-bid-build road funded by taxpayers.

Yet another example is health care. According to the Goldwater Institute, the government-run health care systems of Canada, Germany and France consume over 10 percent of those countries’ gross domestic products. The U.S. system, which is dominated by government-subsidized demand, consumes 15.3 percent of GDP. By comparison, Singapore’s mostly private system takes up 3.7 percent of GDP.

Myth: There is nothing we can do to stop the state’s periodic spending binges.

Reality: Legislators have introduced a referendum bill that would limit state spending growth to the rate of growth of population plus inflation, with excess revenues refunded to taxpayers.

A less stringent referendum bill would reduce Arizona’s existing constitutional spending limit from 7.41 percent of state personal income to 6.4 percent. Both limits would allow the Legislature to lift the cap in emergency situations.

Arizona needs a firm constitutional spending limit, because politicians of all parties are unlikely to voluntarily restrain spending to sustainable levels.

In the coming months, the Arizona chapter of Americans for Prosperity will host a series of town halls to educate the public about the myths and realities of Arizona’s deficit and to introduce citizens to the legislators who are working hardest to solve that crisis without raising taxes on families and businesses.

Tom Jenney is Arizona director and Chad Kirkpatrick is Arizona chairman of Americans for Prosperity.

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