A Taxing Problem

Posted on November 19, 2002 | Type: Op-Ed
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Gov.-elect Napolitano wisely is appointing a commission to study the state's budget crisis. Gov.-elect Janet Napolitano is wisely appointing a commission to identify budget waste and make recommendations for budget cuts during this economic crisis.

Such a commission, if bipartisan and knowledgeable about the ways of government, can do much to guide the Legislature through the taxes and spending quagmire of the next legislative session.

It won't be easy. Most estimates put the budget shortfall for the next fiscal year at about $1 billion.

Stories in both the Star and The Arizona Republic note that Napolitano wants to raise at least $200 million by cutting off existing tax exemptions.

Throughout the recent campaign season, moderate candidates for the Legislature warned that the magnitude of the shortfall would require more than just spending cuts. It would also require the elimination of tax exemptions that drain the state's general fund of needed revenues.

Tax exemptions are the logical place to look. Arizona allows 194 sales tax exemptions that have been granted by the Legislature. They include traditional exemptions such as those for food, medicine and charities. But the state also allows exemptions for dozens of services that include dry cleaning; hair, skin and nail care; mechanical services; dog grooming services; health club memberships; child-care services; management consulting services; engineering services, legal services; and the sales of stocks and bonds, to name only a handful.

In fact, the amount of funds that could be generated by the state's sales tax exemptions are just about equal to the entire state budget.

We appreciate that conservatives feel the need to stand up against taxes. However, this budget crisis is not solely the result of a slow national and international economy. It is also about having granted too many sales tax exemptions to special interests. Some of those exemptions no longer make sense.

As the state moves on from a mining and manufacturing economy to a service economy, it makes sense to eliminate exemptions for some of those services. The problem will be in identifying which services should be taxed and how to protect low-income populations.

Napolitano is even getting some encouragement for her commission from the Goldwater Institute, not normally associated with Democratic causes. It suggests that Napolitano's commission be based on the similar Grace Commission of the Reagan administration in the 1980s. That commission's enduring contribution was the Base Realignment and Closure Commission (BRAC). The BRAC, ultimately decided which U.S. military bases to close throughout the world as a means of saving money.

However, the Goldwater Institute suggests that the budget can be made solvent strictly through elimination of government waste and services. It contends the problems now facing the state are the result of "a decade of reckless spending."

We don't agree. However, we do think that the idea of lowering the overall sales tax bears some study if exemptions are eliminated.

In the meantime, Napolitano is doing well to name a bipartisan commission to study the problem before the legislative session begins.

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