Eye on the Right: Arizona's Failed Experiment with Tax Cuts

How are Arizona's right-wing legislators responding to the state's most severe fiscal crisis since the Great Depression?

Massive corporate income tax cuts, of course.

A "Corporate Bailout":  Arizona's "job recovery act" (HB2250), passed the state House of Representatives in late January and included such corporate subsidies as reducing the assessment for business property taxes, cutting the the corporate income tax rate from 6.968 to 5 percent over four years, and lowering income tax rates by 10 percent.  Ignoring demands by progressive legislators to at least postpone the vote until a fiscal impact study could be conducted, the leadership just has taken steps towards further fiscal calamity.

Opponents of the measure in the legislature point out that if businesses property taxes are reduced, homeowners will have to pay a greater share.  Rep. Tom Chabin states, "[i]t is very clear that homeowners today cannot sustain this kind of burden."  Assistant Minority Leader, Rep. Kyrsten Sinema adds, “[t]he reality is that it’s a corporate bailout package” that would harm the economy and benefit CEO's rather than the middle and working class.

How Arizona's Tax Cuts Fed Their Current Fiscal and Economic Crisis:  The state has become so averse to taxes that a picture of the Sesame Street character, Grover, hangs in the Senate Republican staff room.  The caption under the photograph reads: "Ask Grover," referring not to the beloved children's puppet, but to Grover Norquist, the head of Americans for Tax Reform, an organization that opposes raising taxes and asks lawmakers to sign on to a pledge to reject any and all increases.  Arizona has one of the highest percentage of lawmakers who have added their signatures to the pledge.  Since 1992, the state has approved 42 tax cuts to its three major revenue sources--personal and corporate income, and sales--and eliminated statewide property taxes that accrued to the general fund. 

The result?

Despite right-wing promises that tax cuts prevent job losses and foster economic growth, the state now faces a projected FY2011 budget deficit of $2.6 billion and has suffered the largest job losses of any state in the nation.  In fact, since the current economic recession began in December 2007, Arizona has lost 265,000 jobs, or 9.9 percent of the state's employment.  Even Michigan, with an economy dependent on a shrinking car industry, has not seen those kinds of losses as a percentage of jobs during the recession.  Arizona has some of the highest foreclosure rates in the country, 18.9 percent of the state lacks health insurance and 276,500 Arizona children do not have coverage.  Since 2000, Medicaid rolls have increased exponentially, reaching over 1.3 million in August 2009.

Arizona Fails to Invest in the Future:  Having systematically cut taxes and underfunded education and other long-term social investments for years, the state last year continued to dig a deeper hole by slashing public health, all levels of education, and even temporary health insurance for people with serious medical problems.  Gov. Jan Brewer even approved a proposal to sell Capitol buildings to private firms, which will just cost the state even more in rent payments in the future-- a classic pattern of right-wing state leadership engaging in short-term thinking at the expense of long-term fiscal and economic health.

As PSN has detailed, utilizing progressive tax increases to invest in the building blocks of growth, like education, health care, transit, et cetera, leads to higher economic growth in the long-term and is a far better alternative to massive budget cuts.  Grover's picture needs to come down off the wall at the Arizona state capitol.

Research Roundup

The Case of the Missing Jobs, Revisited - Good Jobs First finds that ARRA data is significantly undercounting jobs created due to federal spending because states are not reporting any jobs created for many projects already underway.

From Foreclosure to Re-Redlining: How America’s largest financial institutions devastated California communities - Using original research using lending and loan modification data that have been largely inaccessible and seldom analyzed, this report from the California Reinvestment Coalition finds that high cost predatory loans in the past have now led to an alarming trend of dispossession in neighborhoods with high concentrations of African American and Latino residents.  Those lenders continue to refuse to work with families to prevent foreclosures.  The report recommends strong federal and state regulatory reform, more help for struggling homeowners and continued vigilance in enforcement of fair housing and fair lending rules.

Spotlight’s questions about TANF - With the nation's welfare program, Temporary Assistance to Needy Families (TANF) expiring in October, Spotlight on Poverty and Opportunity has asked Governors, Mayors, and state legislators to give their insights on the program.  Over the next three weeks, Ohio Governor Ted Strickland, former Indianapolis Mayor Stephen Goldsmith, Savannah Mayor Otis Johnson, and former Wisconsin Governor Scott McCallum answer one question each week about TANF in the 21st century.  Another group of elected officials will contribute during the following weeks.

Health care studies highlight gains from pharma reforms, savings on "medical homes", and rising projected costs in health care:

• Pennsylvania's academic detailing program launched in October 2005 has an annual cost of $1 million.  However, an evaluation of the program has found a significant decrease in inappropriate prescribing, leading to dollar savings that offset the cost of the program.  The program is looking to expand to other state-funded entitlement programs.

• Medicaid and Managed Care: Key Data, Trends, and Issues, a policy brief from the Kaiser Commission on Medicaid and the Uninsured provides an overview of the Medicaid program’s increasing reliance on managed care to deliver services.  The goal of this approach is to improve access to care and coordination of care by assuring that enrollees have a "medical home" with a primary care provider, and to rely more heavily on preventive and primary care.  Adopting managed care also gives states more cost predictability and control over their Medicaid programs, and contracts with managed care plans offer states a mechanism for holding plans accountable for the quality of care they provide to Medicaid enrollees.

• Health Spending Projections Through 2019: The Recession’s Impact Continues: According to a new government study published last week in Health Affairs, national health expenditures are projected to have risen to $2.5 trillion in 2009, or 17.3 percent of the Gross Domestic Product (GDP), the largest one-year increase since the federal government began keeping track in 1960.  The 1.1% point increase in expenditures was boosted by spending on public health programs amidst a deepening recession.  These findings underscore the need for comprehensive health care reform that will help rein in the unsustainable spending growth that is placing an increasing burden on American families, businesses, and state and local governments.  Of greater concern for the future of our health system and the health of our economy is the projection that health spending will increase to nearly one-fifth (19.3%) of GDP by 2019, with a growing number of uninsured and underinsured as more businesses find it difficult to pay for adequate insurance coverage for employees.

Please email us leads on good research at research@progressivestates.org

3 Steps Forward

1. WY: Senate Fails to Move Bill Blocking Health Care Reform

2. US: New Option for the States on Inmates in the Census

3. US: Once Stigmatized, Food Stamps Find New Acceptance

2 Steps Back

1. US: States Cutting Back Special Programs For Uninsured

2. US: With federal stimulus money gone, many schools face budget gaps

Masthead

The Stateside Dispatch is written and edited by:

Nathan Newman, Executive Director
Nora Ranney, Legislative Director
Marisol Thomer, Outreach Director
Fabiola Carrion, Broadband & Green Jobs Policy Specialist
Enzo Pastore, Health Care Policy Specialist
Suman Raghunathan , Immigrant Rights Policy Specialist
Altaf Rahamatulla, Tax & Budget Policy Specialist
Julie Bero, Executive Administrator and Outreach Associate
Mike Maiorini, Online Technology Manager

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