Wednesday, February 16, 2011

Farley Report: Tax Cut Plan Is Disaster for State

Posted By on Wed, Feb 16, 2011 at 11:13 AM

The latest bulletin from state Rep. Steve Farley sounds warning bells about the tax cut moving through the special session:

This week is Special, yet again. The Second Special Session of the year was called on Monday by Governor Brewer. Did she want us to enact a solution to save transplant patients' lives? Did she want us to finally balance the budget and solve our $871 million deficit for this fiscal year, and the $1.2 billion for next?


She and the majority leadership have declared that the urgent action needed right now, more than any other need, is huge corporate tax cuts.

You heard right. Huge corporate tax cuts that would add another $538 million a year to our deficit by the time they are fully phased in, with no new revenues or loophole closures to pay for them.

Normally, such a bill would be considered as part of the budget package so that we can examine the cuts that will be made to health care, education, and public safety in order to fund such a pricey corporate bailout — particularly since the worst of the cuts will kick in after we lose the $1 billion a year we currently have in revenues from the expiring one-cent sales tax.

But in a special session, the Legislature is only allowed to

address the issue specified in the Governor's call -- in this case the call was basically only a description of the tax cuts. Which is a funny thing from a Governor who promised that she would neither cut education or health care nor fund tax cuts with the recently approved one-cent sales tax.

This state's economy is sick, no doubt. We need to administer first aid to fix our economy. But it is not good policy to administer only the spoonful of sugar in the form of corporate tax cuts, without also administering the medicine in the form of increased revenues and loophole elimination.

The business leaders I have talked to -- the top management of some of the largest Southern Arizona companies -- have told me recently that they do not want more tax cuts if they come with more cuts to education. The major problem they are having with business recruitment and retention is not the tax environment, but rather the lack of commitment to and funding for our schools and universities.

All this bill does is give away hundreds of millions of dollars to large corporations with no guarantees that jobs will be created or the money will even be spent in Arizona. It does guarantee hundreds of millions of dollars in additional cuts to Arizona schools, community colleges, and universities while raising property taxes on homeowners.

We found out about the special session Monday morning around 10am. We Ways and Means committee members received a hard copy of the 214-page bill (with no summary attached) on Monday night at 8pm (Happy Valentine's Day!), with the bill due to be heard this morning (Tuesday) at 9am in our committee.

Originally, the committee hearing on this huge and multifarious bill was slated to be only 15 minutes long, but we managed to extend it to two hours of testimony. Even that amount of time was barely enough to scratch the surface of what is in the bill.

Here are some of the lowlights:

--> A new quasi-governmental organization called the Arizona Commerce Authority (ACA)will be created, funded by a new lottery scratcher game (perhaps to be called "Gambling With Your Tax Dollars") and $31.5 million a year from employee withholding tax, routed through the Department of Revenue to the ACA, apparently without being considered "touched" by the government. This is a scheme to circumvent the AZ Constitution's Gift Clause, which precludes giving taxpayer money to private companies. The ACA will then hand out cash to companies of its choosing with very little oversight. In fact, the bill itself actually says (page 49, lines 1-2): "The authority is exempt from state general accounting and finance practices."

--> The corporate income tax rate is reduced from its current 6.94% to 4.9%, with no requirements that corporations be headquartered in Arizona, create any Arizona jobs, or even spend any of the money in Arizona instead of shipping it off to some New York investment bank. That provision alone costs more than a quarter billion dollars.

--> A job tax credit is instituted paying companies $3,000 per job created for three years. That would cost $90 million a year at full phase-in, and would at maximum create 30,000 cumulative jobs by 2018. You should note that the effect of the Governor's current proposal to kick 280,000 people in poverty off their healthcare is estimated to eliminate more than 48,000 private-sector jobs this year alone. Wouldn't it make more sense to save 48,000 jobs we have right now while saving lives, rather than gamble on maybe, if we are lucky, getting 30,000 new jobs seven years from now?

--> Commercial, industrial, and agricultural property taxes will be cut, while property taxes on our homes will increase. There is an attempt to pay homeowners for the additional property taxes, but the scheme is dubious to say the least. Currently owners of a primary residence automatically get a Homeowners Rebate that saves up to $600 a year in taxes. The provisions of this bill would make all homeowners in the state file an affidavit (likely notarized) every two years stating that your house is in fact your residence. If you miss the postcard in legalese telling you to file this affidavit — perhaps it gets lost in your junk mail — you will automatically be charged the much higher rate for rental property. Sounds like an expensive bureaucratic nightmare for homeowners that would never recover enough money to balance out the increase in property taxes in the first place.

There are many more hidden components in this huge bill, many of which will come back and bite us if the majority is successful at pushing this thing through to a final vote and a Governor signature tomorrow as they have planned.

We debated this bill in Committee of the Whole (COW) this afternoon on the floor, and your brave Democratic members of the Ways and Means committee (Gallego, Chabin, and I) along with our fearless minority leader Chad Campbell, offered a series of amendments to let the public know some of the hidden problems with these policies. None of our amendments were accepted, but we raised more than a few eyebrows (and maybe even consciousnesses) among our Republican brethren.

There is hope currently that the Senate may slow this thing down and possibly stop it altogether. Even conservatives in the Senate do not like many aspects of this bill, and they currently have the votes along with Democrats to kill it. Armtwistings galore are happening in Senate President Russell Pearce's office as I write this, so we will see what happens tomorrow.

The clear solution is for these tax cuts to live or die as part of an open, transparent, and comprehensive budget process, not on their own in a backroom deal that majority leadership shoves past us as quickly as they can. Democrats have solutions that can create jobs while saving education, healthcare and public safety and balancing the budget. It would appear you can find the true fiscal conservatives on the Democratic side these days.

The loopholes are the key. Continue to pass around this Department of Revenue document that lays out all the tax exemptions and credits currently in our code. And demand accountability, not insider deals. Feel free to pass it around so all Arizonans find out who really wins in our tax code — it isn't you and me:

Thanks for your continuing faith in me as your Representative.

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