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What the Devil won't tell you

A privilege to tax: RTA law clears way for new sales taxes

Arizona Gov. Doug Doug Ducey signed a piece of legislation that Pima County supervisors actually wanted the boys and girls in Phoenix to approve.

So pop the Dom Pérignon and wait for the Earth’s polarity to reverse. Typically when the Legislature approves laws with the Tucson region in mind, Southern Arizonans' first instinct should be to mark the door with lamb’s blood. It’s usually best the Legislature just ignores us.

But County Administrator Chuck Huckelberry said the Board of Supervisors needed to ask the state nicely for a fix to our road problems after bonds failed in 2015, a push for a unanimous Supes' vote failed and voters rejected a road bond in November.

The Board wants to go the sales tax route, rather than the property tax route, for reasons Huckelberry lays out here. The roads outside municipalities shouldn't be funded by taxpayers inside them is the gist of it. Fair point. But how true is that of a sales tax?

The county does have to constantly hear about how high our property tax is, and that's because we are are the only one in the state not to have a sales tax for daily operations.

This new law gives Pima County supervisors the authority refer to voters another half-cent sales tax to pay for the Regional Transportation Authority. The county desperately needs money to pay for road repairs, let alone new lane construction. 

So it’s more or less good news. The county needs this money and can go to voters to ask for it. They should approach it with caution given the county failed to pass bond packages in 2015 and 2018.

Voters are skeptical and now they will be asked to pay more taxes and more sales taxes at that. It's worthwhile to pay for road construction with sales tax dollars; don't get me wrong.

It’s just that our sales tax in Tucson is getting out of hand and our reliance on it at the state level just keeps soaking the wage-earners (as opposed to stock-flippers) for the price of services we need in an advanced economy.

At some point soon, Arizona will need to start discussing what the hell we are going to do about the state’s increasingly regressive taxation scheme that hits workers hardest and gives the state little in the way of available funds.

As the county's results at the polls show, this isn't an academic exercise.

A privilege to tax

A state with below-average wages will struggle more to have those wage-earners foot the bill. We’re routinely broke and comparatively poor.

If voters exercise this authority, then Pima County residents would be paying a sales tax that is among the highest in the country. Right now, our sales tax sits at 8.7 percent.

At 9.2 percent, Tucson would break into the Top 15 cities in the country, insofar as they tax business transactions and leave us just .01 percent out of the Top 10.

Chicago, Long Beach, Seattle and Tacoma are the cities with rates above 10 percent — and each of them share this trait where they hire workers and pay them in something called “money.” It’s an ancient practice Tucsonans someday may want to look into.

See, sales taxes are regressive because they hit all earners with equal force. But losing a dollar off from $10 leaves fewer option at Target than does losing $10 off $100 for shoppers at La Encantada.

Higher regressive taxes paid by residents of a low-wage city are going to reach a point where voters are just going to start saying "no" to other needed public services.

Out of whack

We don’t even need to think about raising taxes as much finding a new balance among the different kinds of taxes, at the state level if not here.

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Pima County itself doesn’t impose a sales tax. It collects about $110 million in shared sales taxes distributed by the state but relies mostly on $340 million in property taxes.

The city of Tucson is the one overly reliant on sales taxes. The city spends $263 million in sales taxes collected here and shared by the state, while getting just $15 million locally from property taxes.

Let the city collect more property taxes and cut its sales tax and the county's new RTA tax would bite a lot less. 

So homeowners (and renters) will be left on the hook? Long story, but not necessarily. If that bothers you, then let the state raise income taxes and share those with local governments more.

Too much?

Taxes are the sum affect of all taxing jurisdictions. The total sales tax rate totals up by adding the state’s 5.6 percent rate, to the city’s 2.6 percent rate and then the existing half-cent RTA tax.

Statewide, Arizona’s property tax (for owner-occupied homes) is capped at 1 percent and very few taxing jurisdictions get that high. Meanwhile, the states with the highest property taxes run 80 to 140 percent higher than Arizona’s. And property taxes are hit the typical family less hard because businesses and industries pay a higher rate than homeowners.

Arizona ranks toward the bottom reach of income taxes, with rates between 2.59 to 4.54 percent. The top tax bracket, which doesn't kick in until well north of $300,000 annually, is among the lowest in the country.

Nine states impose a lower corporate tax than Arizona but 41 tax corporations at a higher rate than this state does.

Kiplinger’s ranks Arizona as one of the eighth-most tax friendly states in the country alongside states like South Dakota, Mississippi and Louisiana, which Business Insider ranks as having among the five worst economies in the country.

I don’t want to get hung up on what ranks as “tax-friendly,” much less how to rank an economy. There are a whole bunch of ways to skin both cats.

But there are also a number of different mathematical permutations that get the state to get to $14.7 billion in revenue that don’t require $13 billion in sales taxes.

I would point out that the state could raise the income tax, raise the corporate tax or raise certain property taxes and cut the sales tax.

Loopholes, carve-outs and breaks 

Arizona’s sales tax problem is even worse when the carve-outs are considered. The Arizona Department of Revenue filled 26 pages describing these exemptions in a 109-page summary of all tax revenues. There’s a poultry farm exemption, a building material exemption, a university exemption, a health care exemption and a massage parlor exemption, to name just a few.

The Arizona Capitol Times did the math and tallied all those tax breaks to $12.3 billion in lost revenue in 2016. Arizona collected $12.3 billion in sales taxes in total that year (not a typo).

Just half of that would push Arizona school funding from the bottom five in the country to above average and we wouldn’t have to raise taxes a bit.

At the very least we could cut the rate in half and collect the same amount of money.

Con blocked

But of course, there’s the matter of the Arizona Constitution.

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In 2018, Arizona real estate agents tricked voters into constitutionally protecting those loopholes in perpetuity and constitutionally with Prop. 126. I say “tricked” because they posed the measure as a “sales tax freeze” or protecting against new services being taxed.

Put that way, voters said “hell, yes.”

Voters don’t tend to say “yep, protect every special-interest loophole on the books, so I can pay more at Costco.” Not even true conservatives would favor this approach because it lets the government “pick winners and losers” and in this case, they are right to a silly degree.

Also, in 1992, voters passed another protection that requires a two-thirds legislative super-majority for any tax increase.

So both of those have to be looked at before we begin to take a sane look at our taxes.

Voodoo and Mao

The Legislature likes it this way because they are, by and large, “supply-siders.”

“Supply side” economics means protecting economic production by minimizing the tax liability on that axis of the supply and demand curve. Protect the accumulation of wealth because wealth leads to investment.

A regressive tax hitting workers harder, allows wealth to collect. So that’s where supply-siders prefer to find their tax revenues. They like sales taxes.

As much as people like to hyperventilate about supply side as “Voodoo Economics,” it’s really not. Voodoo economics is the idea that tax cuts pay for themselves and even that is true in some – but in no human way all — instances. Business creation and expansion absolutely helps the economy.

People don’t tend to talk about protecting the worker as “demand side” economics, even though that’s what it is. Protect the wage-earner and they’ll spend more money, creating a demand that will increase supply because business reacts by hook or crook to fill the needs of the markets.

Higher taxes aren't preventing other states in meeting demand, but that's often treated as Maoist socialist dogma.

Protecting capital and demand requires a balance but it can be done.

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Ducey may have signed the bill but who is going to pay for it, will be the question left facing voters in and around Tucson.

Blake Morlock is an award-winning columnist who worked in daily journalism for nearly 20 years and is a former communications director for the Pima County Democratic Party. Now he’s telling you things the Devil won’t.

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