Needed: Comprehensive look at tax code
Tax policy is often like looking at a pointillist painting – stare closely at only a section, and you don't have a sense of the whole picture. But when you back up, the picture comes into a focus.
Gov. Brewer recently signed into law HB 2123, which will help policymakers and the public stand back and take a much-needed look at all the elements of the tax code at once.
The law creates a tax reform commission for Arizona that will be required to issue a report by October. The commission will take a look at how well or poorly the current system works overall relative to desired economic outcomes and the need to fund the government.
I know what you're thinking, "oh good; another government commission." But, other states, such as Georgia, have convened a similar sort of commission, and in many cases, the committee hearings and the resulting reports have motivated a healthy debate about the best sort of tax system the state should have. And that's a good thing.
Too often, tax changes are made on an ad hoc basis or by voters at the ballot box based on political whim. Additionally, tinkering in one part of the tax code – usually by making exceptions for certain types of businesses – can lead to unintended consequences and pressures to keep taxes high on other business and industries.
Fundamental tax reform necessarily starts with a broad approach. The piecemeal fashion the Legislature and voters pursue now leads to relatively high tax rates and a narrower tax base. In other words, high taxes on some, low taxes on others, and a growing constituency of beneficiaries – whether it be special interest lobbyists, tax accountants, or legislators hoping to woo a certain type of business or industry – entrenches the current tax system and might even make it worse.
The first step in reforming the tax code is to view it in its entirety. Commissions are a common way to do that and they also help policymakers and the public understand what's broken and – perhaps most important – whether any taxes should be substantially reformed, reduced, or terminated to help create jobs and raise family incomes.
Stephen Slivinski is senior economist at the Goldwater Institute.