Phoenix, AZ -- Goldwater Institute economist Stephen Slivinski responded today to a proposal by Senate President Randall Gnant (R-Scottsdale) to create a new, statewide property tax to help cover an estimated $240 million of the budget deficit. Says Slivinski, "The Gnant tax will retard growth, punish homeowners, and do nothing to address the problem at the root of the deficit.
According to Slivinski, the proposed tax would do economic harm to the state. "As a matter of economic policy," he says, "raising taxes is the worst thing to do during an economic downturn. By retarding growth, the new tax will exacerbate the problem. The last thing the state should be doing in a recession is heaping more taxes on homeowners."
Worse, Gnant's proposal ignores the fundamental cause of Arizona's deficit troubles: "The deficit exists because the legislature has spent more money than it has brought in." Slivinski points out that during the budget surpluses of the 1990s, for every dollar given back to taxpayers in tax cuts, two dollars went to fund higher spending. As a result, while population only increased by 36 percent, spending increased by 63 percent.
Slivinski believes that the Gnant tax will only add fuel to the budget fire. "Expenditures will rise to meet income," he says. "With a new source of revenue, the legislature will simply spend more. That is precisely what got us into this mess in the first place." The new tax would also centralize Arizona's property tax system, which has historically been the prerogative of local governments.
Slivinski argues that a solution to the budget deficit is readily at hand: "The legislature has the opportunity to balance the budget without raising taxes, issuing debt, or using budget gimmicks like forward funding. It's only a matter of having the courage to make the right choices." In a report released May 2 by the Goldwater Institute, Slivinski lists over $233 million in unnecessary and duplicative spending in the state budget. To balance the budget, Slivinski advises eliminating those programs and combining those cuts with across-the-board spending reductions of 4-5 percent-far less than the 7-8 percent cuts the legislature would need to balance the budget without resorting to gimmicks.
Slivinski is also critical of Gnant's proposal to reduce the state's scholarship tax credit. "Reducing the tax credit amounts to a tax increase," he says. "This is a prime example of the legislature destroying flowers because it was unwilling to pull the weeds. Children and taxpayers should not suffer because legislators won't tend their garden.