The Arizona Free Enterprise Club

Today the Arizona Free Enterprise Club released a comprehensive study of the Kansas tax reform experiment, reviewing many of the claims made by opponents of the 2012 tax cuts to determine their accuracy and applicability to income tax reform.

Titled “The Kansas Tax Reform Experiment: How Arizona Can Learn the Right Lessons from the Sunflower State,” the study finds that many of the claims made by detractors of the Kansas tax package are simply not true. State spending did not decline after the tax cuts were enacted, economic growth was faster when compared to similarly sized states and business growth accelerated in the state.

Rather, the budgetary problems encountered by Kansas were avoidable mistakes that Arizona can learn from if meaningful tax reform is to be implemented in the Grand Canyon State. Some of the lessons from the Kansas experiment include:

• Spending restraint is key to any large tax cut—Contrary to the myth pushed by critics of the Kansas tax cuts, per capita spending was not slashed in the Sunflower State. In fact, overall spending increased in Kansas from 2013 to 2016. Any state considering large scale tax cuts should not plan to spend more.
• Tax reform should include the elimination of targeted incentives and tax credits—When Governor Brownback originally proposed his tax plan, it included the elimination of carve-outs that would have simplified the tax code and recovered lost revenue. These reforms, however, were excluded from the final package, a major mistake that should not be made by other states considering reform.
• Don’t overestimate revenue growth from tax cuts—A common mistake made by supporters of supply side tax cuts is to overestimate economic growth, and with it new tax revenue, that will immediately pay for the tax cuts. This is often not the case, and projected revenues associated with dynamic scoring should be approached conservatively.
• Some changes in the tax code generate more economic growth than others—A key to successful tax reform is understanding that some taxes are more damaging to economic activity than others. This is especially true when considering job growth related to productivity taxes vs. consumption taxes. It is even possible that revenue neutral tax reform can generate additional economic growth if structured properly.

The paper also takes a look at the arguments made by progressive pundits to determine if the ‘blue state’ model of higher taxes and regulations has been more successful in the US than the low-income-tax ‘red state’ model. Our findings clearly show that red states such as Texas and Florida consistently outperform their high tax competitors such as Illinois, a fact consistently ignored by liberal detractors.

The Club’s policy paper can be viewed HERE.

It is hardly debatable that Phoenix’s decision to get into the hotel business nearly a decade ago has been a costly mistake for taxpayers.  Since opening, the city-owned Sheraton has sustained millions in operating losses and does not anticipate being a profitable enterprise anytime in the near future.

So, when the City announced it was going to sell the Sheraton, an opportunity was created for city hall to recoup its costs and make taxpayers as whole as possible. Unfortunately, Phoenix Leadership instead decided to use this opportunity to once again soak taxpayer for short term political gain.

Last week, Phoenix completed a deal to sell the Sheraton hotel to a developer for $255 million.  The City built the hotel for $350 million, and even after the sale still owes almost $50 million in debt.

If swallowing a $50 million-dollar loss wasn’t bad enough, Phoenix also gave away millions in subsidies to the developer. Inserted into the deal was a massive $97 million property tax incentive package and the City’s hotel replacement fund, worth approximately $11 million.  With all incentives factored in, the real sale price is closer to $144 million, less than half its original value.

All of this begs the question: Why now accept such a lousy deal when for years a majority of councilmembers and Mayor Greg Stanton fought the sale of the Sheraton?

The reason should anger taxpayers even more. To pay for the construction and operation of the Sheraton hotel, the city has used the sports facilities tax, a revenue stream that generates around $10 million a year. It is no secret that Mayor Stanton and others want to use this tax to build a new sports arena (perhaps for hockey or basketball), and needed to unload the Sheraton to make this happen.  It is outrageous that taxpayers should endure a $200 million-dollar loss on the Sheraton hotel just so a group of city insiders can use the revenue stream to invest in another project.

Furthermore, the property tax carveout included in the deal (GPLET) is currently under litigation.  The Goldwater Institute has sued for several major Constitutional violations with the property tax scheme, one being the “Gift Clause” which precludes municipalities from giving a private person or entity a financial benefit without receiving a benefit to the public at large.

While most of City Hall was on board with this scheme, it should be noted that not everyone went along with this insanity – Councilmen Jim Waring and Sal Dicicio voted against the transaction in an effort to protect taxpayers.  But as is most everything in the City of Phoenix politics – insanity reigns.

For Tucson voters, seeing another tax increase on the November ballot probably doesn’t come as a shock. Yet the latest big government spending plan is especially bizarre: a ½ cent sales tax increase to fund a city-wide preschool program.

The audacity and complexity of Proposition 204 is generating opposition not just from conservatives, but liberal groups as well.  The nature of the resistance is centered around the plan’s lack of accountability, transparency, and threat to other education funding priorities.

The most obvious problem with Prop 204 is that Tucson simply is not qualified to administer or manage a preschool program.  Since statehood, public education has been overseen and funded through school districts and the state, not municipalities.  Tucson will waste a great deal of taxpayer money developing, implementing and overseeing a new government program in a field they know nothing about and is already handled by other public entities.

The vague, ambiguous language contained in the initiative has only added to the confusion and has raised more questions than answers.  According to Prop 204, a 7-person commission appointed by the City Council would be the decision makers on how the program would work.  The commission would then hire and oversee a non-profit corporation to administer the program.

Critical details such as which citizens would qualify for the program, rates of reimbursement, oversight of which pre-k providers would be eligible, a sliding economic scale, etc would all be made by this unaccountable commission.  Additionally, a couple of the commissioners would be early childhood education providers, raising serious questions of conflict of interest.  The entire structure is long on bureaucracy and short on transparency and accountability: the City Council would oversee a commission, that would oversee a non-profit, that would oversee the pre-k program.

Proponents of Prop 204 have cited programs in Denver and San Antonio as examples of success.  However, in both examples the preschool programs enacted were much smaller and included only a 1/8 cent tax increase. Tucson’s proposal is four times larger and proponents have not provided an explanation of why their program would require such a large contribution from taxpayers. Perhaps the answer lies in the complicated governance of the program, eating up efficiency and potential impact.

Even if Prop 204 wasn’t so poorly crafted, it is doubtful that Tucson can afford another large tax increase.  It was only a few months ago that voters approved a ½ cent sales tax increase dedicated to road repairs and public safety equipment and facilities.  If the latest increase is accepted, residents will shoulder a 50 percent increase to their sales tax within just a year!

The tax hike looks even worse when considering Tucson’s poor economic and job performance over the last decade. It was just announced that Tucson was ranked as the most distressed city in the nation, with 58.6 percent of its population living in economically distressed zip codes.  Considering their dire economic situation, passing higher taxes will only make the city more unaffordable to its residents and less attractive to potential job-creators.  Hopefully voters will realize the foolishness of Tucson getting into the preschool business and will reject this poorly vetted initiative.