The supporters of making the temporary 1-cent sales tax increase permanent – which is what the passage of Proposition 204 would do – claim that what they are proposing isn’t a tax hike, it’s simply an extension of an existing tax.
The permanency of Proposition 204 would only be so innocuous if you assumed that nobody changed their behavior on the expectation that the tax would go down. But businesses have to make decisions today based on assumptions about the future. If they believed that the sales tax rate would go down in 2013, as current law states, we can assume they would have made long-term business plans and hiring decisions based on that.
Economic models make predictions about future growth based on these sorts of assumptions, too. Ample empirical evidence already supports the conclusion that rising tax burdens can shrink employment growth. As such, an unexpected tax increase – which is the best way to describe Proposition 204’s halting of an expected tax cut – should be expected to dampen job growth.
The State Tax Analysis Modeling Program developed for the Goldwater Institute by economists at the Beacon Hill Institute based at Suffolk University in Massachusetts, integrates just those sorts of assumptions. The model is based on historical data on how tax burdens have changed economic patterns in Arizona. When you take into account the unexpected $1 billion tax load that would exist as a result of Proposition 204, you discover that overall private employment growth could be lower by at least 15,000 jobs each year than it otherwise would be as a result of the higher and newly-permanent sales tax rate.
There will be job growth as a result of Prop 204, but likely only at the construction firms that receive government contracts as a result of the tax hike and the education bureaucracy. The state would be better off with 15,000 jobs created across all parts of the economy than more jobs created that are dependent on the growth of government.
Goldwater Institute: Proposition 204 – Not as Advertised
Goldwater Institute: The Construction Industry Actually is “Doing Just Fine”
Goldwater Institute: Arizona’s Secret Growth Industry