The Billion-Dollar Question

Will Arizona voters approve a one-cent sales-tax hike this May?

Gov. Jan Brewer finally got what she wanted last week: A sales-tax ballot question without any strings attached.

It took 10 months of intense political battles, but a group of Republicans and Democrats finally joined forces to ask voters on May 18 to approve a temporary, one-cent-per-dollar increase.

Arizona, which will face an estimated shortfall of as much as $3.5 billion in the fiscal year that begins in July, is in desperate need of additional revenue if the state is going to continue to adequately fund schools, provide health-care programs, keep parks open and continue other state programs.

A budget that Brewer recommended last month would eliminate all-day kindergarten, kick hundreds of thousands of people off state-subsidized health insurance, sharply curtail services for the mentally ill, eliminate GED and adult-education programs for people who don't make it through the school system, dump state support for gifted students in public schools, and force a wide range of cuts in other areas. (See "Slashing the State," Jan. 21.)

Those cuts would be required even if voters approve the sales tax, according to Brewer. If voters reject the plan, the cuts will be even deeper.

State lawmakers had been reluctant to ask voters to approve the sales tax unless certain strings were attached. Republicans have been advocating for a package of future income and corporate tax cuts to go along with the sales-tax hike. GOP lawmakers argue that these tax cuts, which will overwhelmingly benefit Arizona's wealthiest residents, will spur the economy.

A version of that proposal has already passed the House of Representatives this year, but Senate President Bob Burns says it's "on hold" in the Senate until the state's current budget problems are resolved.

Democrats have opposed that plan, because they say it will only shift the tax burden from wealthy Arizonans to poor and middle-class residents. Plus, they point out that the sales tax would be a temporary measure, while the income and business tax cuts would be permanent, unless two-thirds of state lawmakers vote to reverse the cuts—which has never happened since Arizona established a super-majority requirement for raising taxes.

Democrats have been advocating a major overhaul of the state's tax system to spread the tax burden over a wider base so it is less dependent on construction activity and consumer spending. They've suggested lowering the sales-tax rate while extending it to services, from legal bills to haircuts. They've also pitched other tax increases, such as a tax on nonrenewable energy generation that would partially be paid by out-of-state customers of power companies that export electricity.

But Republicans, who remain in control of the Legislature, have been cool to any talk of new taxes.

Last week, lawmakers on both sides of the aisle decided that the time for debate had passed, and it was time to let voters have a say on the sales-tax hike, although some Republicans who voted for it said they hoped it would be defeated at the polls.

Whether voters will support it remains to be seen, but at least one pollster has told the Weekly that the sales tax had more support than alternatives such as raising income taxes on wealthy Arizonans or extending the sales tax to services.

Resistance to the sales tax on the right end of the political spectrum will be fierce. After lawmakers finally agreed to put the question to voters, attorney John Munger, who is seeking to unseat Jan Brewer in the GOP gubernatorial primary, called the idea of raising taxes "madness."

"Raising taxes will kill thousands of jobs at a time when we need them most," Munger said in a statement. "Another tax increase will also help ensure that Arizona remains one of the least competitive states to do business."

But Brewer may find a boost from the business community.

Glenn Hamer, president and CEO of the Arizona Chamber of Commerce and Industry, says his organization supports the idea of raising the sales tax temporarily to help Arizona through the current economic crisis—but he wants some kind of business tax cuts, too.

"Some sort of tax increase would be necessary to help Arizona through the most difficult budget period in its history, so long as it is coupled with longer-term, job-creating measures," Hamer says.

Meanwhile, political activists on the left will probably support the tax, but some warn that it will not provide enough revenue to get Arizona through the next few years.

"A one-cent sales tax is too little, too late," says Penelope Jacks of the Children's Action Alliance. "We would support it, but it's not going to fix the problems."

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