Thursday, May 28, 2009

The New Democratic Budget Plan: Key Takeaways

Posted By on Thu, May 28, 2009 at 11:10 AM

Legislative Democrats have released their new budget plan to fix the state’s $3 billion (give or take) shortfall. It’s an audacious stab at tax reform that uses all sorts of abracadabra to dramatically change Arizona’s tax structure on a simple majority vote.

You can find all the details at strongerarizona.com, but here are my key takeaways:

• The Democrats extend sales taxes across services that are currently untaxed. That means a lot of people—lawyers, accountants, barbers, dog groomers—are suddenly going to be paying taxes.

• To keep the increase “revenue-neutral” in an effort to avoid the requirement that any new tax be approved by two-thirds of the Legislature, the Democrats lower the overall sales tax from 5 percent to 3.4 percent.

• Here’s where the gimmicks really start: The plan anticipates that cities and counties will also extend the sales tax to services, creating a windfall for them. As a result, the state can then borrow $1.17 billion in shared revenues from cities and counties. (We’ll explain that in more detail in an upcoming post.)

• Property taxes will be increasing. The Democratic plan restores a statewide property tax that will raise

$250 million annually and gets rid of a subsidy that will result in higher local property taxes for both businesses and homeowners, which brings in $730 million. But they try to sweeten the pot for businesses by boosting the business personal property-tax exemption—a $2.7 million break from them—and expanding an effort to reduce their share of property taxes by reducing what the wonks call the assessment ratio.

Rep. Steve Farley argues that with the cut in the sales taxes, average families will save money even if their property taxes increase.

• The plan drops $400 million into the rainy-day fund to help the state through FY 2011-2012.

We’ll see the GOP response soon enough.

I see intense opposition from a wide range of services, from lawyers to barbers, who will fight having new taxes. In that sense, it’s kind of stimulus package for lobbyists.

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