Setting record straight on taxation in Arizona

The Arizona Republic
Sunday, May 10, 2009
Robert Robb

From the political notebook:

• Within the spending lobby, there is no more firmly held belief than that Arizona is an inexcusably low-tax state.

The basis for this belief is a report on state and local tax collections from the Census Bureau. For 2006, the most recent year for which figures are available, Arizona ranked 39th among the states in tax collections per capita. Hence the conclusion that, compared with other states, Arizona is among the bottom dwellers.

Too much was always made of this. Arizona ranks 35th in per capita personal income. So, the proper conclusion all along was that the state taxes roughly proportionate to the body politic's ability to pay.

As it turns out, even that seriously understates Arizona's tax load.

The Census Bureau figures aroused the suspicions of the indispensable fiscal sleuths at the Arizona Tax Research Association. So, they started digging into the data's details.

They found that Arizona's figures were missing huge sums of money. The state education sales-tax revenue wasn't included. The Maricopa County transportation sales tax was omitted. More than half of Arizona's vehicle-license tax was missing.

In all, ATRA found almost $2 billion in unreported tax collections.

If these missing revenues are included, Arizona's rank increases to 32nd in per capita tax collections. As a percentage of personal income, or capacity to pay, it rises to 15th-highest in the country.

So, rather than being a low-tax state, Arizona actually ranks more toward the middle in terms of nominal tax load and higher than average based upon ability to pay.

Based upon ATRA's research, the Census Bureau has already added $1.2 billion to Arizona's tax collections and is studying the rest of the claims.

ATRA has done a lot of good work over the years. This sleuthing is one of its most valuable contributions.

• As much as public-policy debates in Arizona are driven by these kinds of cross-state comparisons, the Legislature should take action to ensure that Arizona's reported data is accurate.

The local government figures for the Census, for example, were being collected by an ASU professor with limited help. It's just too big of a job, with too little incentive on the part of the entities with the raw data to cooperate, to do it that way.

Arizona expenditure data in the Census reports are undoubtedly as flawed as its tax-collection data. Arizona's reporting on education expenditures for national studies has also been spotty. Sometimes, the Arizona figures have had to be extrapolated.

To ensure accuracy, the Legislature should assign the job of collecting and reporting this data to the Auditor General's Office. And it should make the distribution of state-shared revenues to cities and counties and education assistance to school districts dependent on cooperation with the auditor general's efforts.

• The historical importance of Jack Kemp was generally understated in the reporting of his passing last week. Kemp changed the central focus of Republican economic policy.

Prior to Kemp, the Republican central focus was on the need to balance budgets through limiting spending.

Kemp argued that, instead, the central focus should be on fostering expanded economic opportunity through reductions in marginal tax rates. Ronald Reagan made Kemp's idea the principal domestic proposal of his 1980 presidential campaign, enacted it after being elected, and it has been the Republicans' central economic focus ever since.

Kemp was a graduate of Occidental College in Los Angeles. He gave a series of lectures there while I was serving as editor of the campus newspaper. So, I was able to follow him around and get to know him a little. His intellectual appetite for information and policy analysis was nearly exhausting.

Kemp practiced a different kind of politics, as well. Newt Gingrich and Karl Rove sought Republican victories by highlighting divisions in which more people sided with Republicans than Democrats.

Kemp was frankly bored when talking to Republican and conservative groups, people who agreed with him. His politics was that of an evangelist. He was always trying to make converts.

He passionately believed that expanding private-sector opportunity was a better way to help the disadvantaged than government programs. His sincerity and commitment to building better ladders to success for those at the bottom were transparent.

As Republicans consider how to regroup and regain political traction, they would do very well to try to recapture the spirit of Jack Kemp.