Tax Reform or Shell Game?
 Arizona Republic columnist Robert Robb says he traditionally opposes raising taxes to solve budget problems. But, if there is no other solution, then state officials at least should re-think a proposal ease state problems by creating more tax burden for local government and business, already heavily taxed, he says.
The myriad of tax reform proposals – and proposals that may be masking as reform – make it difficult for many citizens to decipher which ideas are in their best interest and which are the product of partisan or special interests.
A good place to begin may be the web site of the non-partisan tax research group, The Tax Foundation.
Before jumping into the fray of competing proposals, the news consumer may benefit by understanding the principles that guide this research group in its analysis and commentary on proposals that make good tax policy and those that don’t – and why.
The Tax Foundation: Principles of Good Tax Policy
Six principles that The Tax Foundation believes represent touchstones for good tax policy everywhere are: simplicity, transparency, neutrality, stability, not being imposed retroactively, and a broad tax base and low rates.
In essence, The Tax Foundation takes issue with tax policy that is too complicated for Americans to understand or adds high administrative costs and provides an incentive for some Americans to disguise income or other taxable assets.
Additionally, The Tax Institute opposes tax policy that is used to manipulate societal behavior or punish or reward behaviors. “The primary purpose of taxes is to raise needed revenue, not micromanage the economy. The tax system should not favor certain industries, activities, or products,” asserts The Tax Foundation.
Also, The Tax Foundation takes issue with temporary fixes that make long-range planning difficult.
Currently, Arizona Governor Jan Brewer is proposing a temporary increase in the state’s sales tax to get Arizonans through the immediate difficult time. She noted in her letter conveying her FY 2010 budget proposal this week that the looming deficit is about 40 percent of spending in the previous fiscal year, with just one month until the new budget is supposed to be final.
The Tax Foundation has noted how temporary taxes have a way of becoming entrenched in state planning for longer than originally promised – and often taxation levels never return to what they were before the “temporary” tax was enacted (click here for historical documentation The Tax Foundation provides in the case of North Carolina).
Finally, The Tax Foundation favors tax reform that spreads taxes over a broad base (similar to avoiding policy aimed at manipulating behavior by not granting favors or exemptions to certain groups) with tax rates that are low. (The Tax Foundation discussed this principle as it might pertain to federal income tax in a 2005 special report.)
Tax Policy That Is Not a Shell Game
In addition to exhibiting qualities of fairness, simplicity, transparency, neutrality, and stability, effective tax reform must do more than push the mounting burden from one layer of government to the next or one societal group to the next or one generation to the next.
This is precisely the point that Arizona Republic columnist Robert Robb makes in the featured article when he comments on the inadvisability of a particular proposal (in this case, one from Democratic lawmakers) in avoiding a tax increase at the state level only by pushing it to the local level.
In her budget transmittal letter, Arizona Governor Brewer acknowledges the importance of good stewardship of financial resources on behalf of future generations of Arizonans as the fourth point of her four criteria for addressing today’s budget crisis.
While the letter conveys a commitment to solid planning and preparation for the future in terms of increasing rainy day funds, ending the year with more money, planning over a longer term (so as to not be beholden to as many arduous, short-term budget year pressures) and ensuring that vulnerable groups will have what they need while other spending is cut, it also is difficult to read through the text and not wonder at how it all can happen – at least how it can happen without shifting a larger burden onto someone.
It may be that the wish list of responsibilities for government to handle has just gotten too big for taxpayers to afford (as Ronald Reagan predicted for California 43 years ago – see excerpts from exclusive interview by AO Publisher Jack Cox with Ronald Reagan before he became governor).
Nearly all states are grappling with budget shortfalls, while trying to safeguard the full menu of programs. But rushing to a solution that keeps everything in tact by virtue of shell-game shifts or use of federal stimulus dollars that won’t come again may only add to the snowballing effect of creating a bigger problem in the future. |
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