Monday, May 10, 2010

Sales-Tax Hike: UA Economists Vs. Goldwater, Again

Posted By on Mon, May 10, 2010 at 4:57 PM

A hat tip to David Safier of Blog for Arizona, who notes that UA economist Alberta Charney has responded to the nonsense that the Goldwater Institute is passing off as an economic analysis of the impact of proposed one-cent-per-dollar sales tax hike that voters will decide next Tuesday, May 18.

To summarize: Charney, a senior research economist in the UA Eller School of Management, ran the sales-tax numbers through a couple of standard economic models. She could not get the results to match up anywhere near the numbers produced by the Beacon Hill Institute of Massachusetts, which created its own economic model to come up with numbers showing that the state would lose jobs.

One major problem: Beacon Hill's model is rigged to always deliver negative economic results, says Charney:

The STAMP model incorporates every conceivable negative consequence of taxes that can be built into a model, regardless of the level of taxes in the state. It is built to compute negative tax effects.

One of Charney's key (if wonky) points:

BHIR implies that since our findings indicates a positive job impact of raising taxes to prevent major cuts in state services, then why doesn't Arizona just keep increasing taxes indefinitely thereby increasing net jobs. They should know that models can only be used for modest changes from existing economic conditions and that results from modest changes cannot be used to predict what would happen with large, never before seen, changes in policies.

Further, I want to say clearly and without reservation that no one, particularly me, is arguing that Arizona should raise taxes indefinitely because government spending creates more net jobs. Nor would I argue that Arizona should allocate more on spending categories that would result in inflows from the federal government, just for the sake of having more money flow into the state. What I have argued for a long time, and will continue to argue, is that Arizonans need to decide what level of public services they want and create a tax structure that raises the necessary funds to pay for them that is as efficient and fair as possible.

If they are going to make that accusation, however, isn't the reverse question applicable? Since the BHI STAMP model always results in negative economic consequences

of a tax increase then, for the benefit of Arizona's economy, shouldn't all taxes be immediately repealed? If tax cuts always create growth, then Arizona should be flying high. Arizona has had 42 cuts to the individual income tax, sales tax and corporate income taxes since the early 1990s. Does anyone really believe that the march to the bottom in terms of taxes and government services has really increased state growth? Have all these tax cuts immunized the state against downturns? (More about this taxation and growth will be discussed below.)

Arizona is a state that has benefited enormously from government investments throughout its history, yet there are those who would deny that government activities are important to the well-being and continued development of the state. A major portion of the land we currently call Arizona was purchased from Mexico by the federal government. And where would Arizona be without the Roosevelt Dam, the interstate highway system, the Central Arizona Project, our regional highways, or the universities, community colleges, and the entire educational structure in the state?

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