Stephen Slivinski

What Arizona Needs Now is... a Tax Hike?

Posted on May 15, 2003 | Type: Op-Ed | Author: Stephen Slivinski
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Earlier this year, Governor Janet Napolitano distributed to the press a study titled "The Way We Tax," which was released in the February issue of Governing Magazine. But the Governing study is far from being an ideologically neutral guide to good governance. In fact, the study has a strong bias in favor of higher taxation and higher spending.

"The Way We Tax" rates state tax systems for adequacy and fairness on a scale from one to four stars. As Governing has it, the average adequacy score for the five states with the highest tax burdens is 3.2 stars. The average fairness score for those states is 2.8 stars.

The top five states in the study were Delaware, New Mexico, Hawaii, Vermont, and Minnesota, all of which have high overall tax burdens as a percentage of personal income.

By contrast, the five states with the lowest tax burdens-Colorado, New Hampshire, South Dakota, Tennessee, and Texas-score an average of 1.6 stars for adequacy and 1.8 stars for fairness. Three of those states don't have income taxes: Texas, Tennessee, and New Hampshire. The study does award South Dakota high marks for its all-inclusive sales tax, making it the only state without an income tax to score well.

Clearly, Governing Magazine prefers higher taxes. But the study never explains why low taxes are should be considered "inadequate," or for that matter, what's so "fair" about high taxes.

Part of Governing's odd ranking system can be explained by its attempt to quantify how broad-based sales and income taxes are. This is a worthwhile goal. But broad-based taxes should not equate to high tax burdens. In fact, the necessary counterpart to a broad tax base is a low rate.

The Governing authors do a bad job of disguising their bias. For instance, they can't hide their obvious pleasure at seeing taxes hiked. Take the description of Connecticut's controversial adoption of an income tax: "Governor Lowell Weicker pushed for the new [income] tax. He was burned in effigy, but he and a courageous group of legislators worked to bring the new income stream into existence in 1991. And, despite all the dire predictions, the income tax seems to have given Connecticut a balanced tax system for the first time."

But at what cost? The study does not mention the severe economic damage inflicted upon the state as a result of the income tax. In the following ten years, Connecticut had some of the lowest employment and population growth rates in the nation.

The Governing study also scorns citizens' attempts to control taxes and limit spending. Colorado's innovative and successful constitutional limit on spending and taxation has "crippled" that state, according to the authors. "Dubbed TABOR - for the Taxpayer's Bill of Rights - it strangled officials' ability to raise taxes by adding to the state's constitution the requirement that voter approval be obtained for any tax increase." In other words, because Colorado citizens put their government on a leash, the amendment is described as a restriction on Colorado's "ability to make positive changes for the future."

Colorado's spending limit allows voters to lift the cap in an emergency or when more government spending is desired. But Governing insists, "This was tried. It failed." That statement is patently false: in the 2001 election, Colorado voters approved Amendment 23, which raised the cap to allow for more education spending.

Of course, Governing Magazine is entitled to its own point of view. But Arizonans should understand that the study is a terrible guide for policymakers. The study ignores over forty years of data showing that states cannot tax their way out of recessions. Comparatively high state tax burdens are a drag on state economic growth, and limits on tax burdens are preferable. If anything, the Governing study should be used by policymakers as a guide for what not to do.

Slivinski is director of tax and budget studies at the Goldwater Institute, and coauthor, with Stephen Moore, of the Fiscal Policy Report Card on America's Governors, published biennially by the Cato Institute.

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