Tax Lawyer's Blog

Following Oregon’s example, Washington and Arizona are submitting tax increase measures to the people for a vote.

Joseph Henchman of the Tax Foundation’s Tax Policy Blog is all over the story.

Arizona Voters to Consider Sales Tax Increase on May 18

Overly optimistic revenue projections have led to a $1.5 billion gap opening in the current Arizona state budget. Legislators just wrapped up a session focused on closing that gap:

Arizona lawmakers ended their latest special session on the budget crisis Thursday in time to hold a May 18 special election on Gov. Jan Brewer’s proposed one-cent, temporary sales tax increase to help balance future budgets.

Besides approval of the election, legislators also agreed to $750 million of borrowing to close roughly half of the projected $1.5 billion shortfall in the current budget on spending of $8.4 billion.

However, a bill to close more of the current shortfall by delaying $450 million of education funding into the next fiscal year died with adjournment of the special session. The Senate had balked at the House’s attempt to try to force senators to approve a House-passed bill on tax cuts and job-creation incentives.[...]

Lawmakers all along planned to leave $250 million of the shortfall to be closed later, possibly through midyear spending cuts that would add to ones approved in December.

So to recap, $750 million in borrowing, $450 million kicked into next year’s budget, and $250 million in question marks.

The sales tax election will occur on May 18. The proposal to refer the tax to voters passed 34-25 in the House. The Arizona Republic is already editorializing its support, while opponents say a rejection will provide the mandate to address state overspending.

Washington State Considers Having Highest Sales Tax Rate in the U.S. 

Washington State legislators have introduced HB 3183, which would raise the state sales tax by 1 percentage point, phasing out as unemployment drops. The tax would drop by a half-point when unemployment falls below 6.5% for four consecutive months and the remaining half-point when unemployment drops below 5%.

Statements from sponsors and critics:

“We need the money,” Appleton said. “I hate to say that, but there are so many people who are going to be hurt and so many cuts we need to make. We’re trying to figure out ways that are the least painful.”

Jason Mercier with the Washington Policy Center sent a statement in response to the bill, suggesting that a sales tax hike this high could result in 15,000 Washingtonians losing their jobs. He was referring to a study by the Washington Research Council.

Mercier said a tax increase always has “some kind of negative impact on the economy.” The extent of the impact depends on whether the tax hike is during boom times or bust. A recession is when a tax hike is most likely to result in job losses, he said.

Appleton said the tax increase shouldn’t cause job losses because it will help save programs such as the state’s Basic Health Plan and assistance for people who are permanently unemployed.

I’ve often heard the argument that tax increases will enable needed programs to survive despite their negative impacts on economic activity. This is the first time I’ve heard a denial that tax increases have negative impacts.

Washington State currently has the third highest combined state-local sales tax, and a 1% increase in the rate will make them first. See the map below (Click here for the map in printer-friendly or alternative formats (PDF, TIFF).

My Observations

Unlike Oregon where residents voted in favor of tax increases on only a single, narrow segment of society, the so-called rich, the burdens of the Arizona and Washington sales tax increases will be borne by all classes of residents. Naturally, I look forward to comparing the demographics showing which segments of the Arizona and Washington populations voted for the across-the-board sales tax increases to the demographics that show which segments of the population in Oregon voted to tax only the rich.

We might have a reverse-Oregon affect: Higher percentages of the wealthy will vote in favor of the sales tax increases seeing them as either class-neutral or regressive and lower percentages of the middle-class and poor will vote against the sales tax increases for the same reason. In short, all socioeconomic classes - poor, middle-class and rich – in Oregon, Arizona and Washington will have operated under the following cynical principle:

“I don’t mind tax increases as long as I don’t have to pay them.”

Related Posts:

• Oregon Says Yes to Taxing Guy Behind the Tree
• Flori-gon?
• Florida Sales Tax, Internet Sales and Remember the Lottery?
• Tax Scratch Fever
• States Cracking Down on Taxpayers
• Just a Little Bit of History Repeating

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