Arizonans went to the polls in a special statewide election on May 18 and overwhelmingly voted to increase their state’s sales tax.
Sixty-four percent of voters favored Proposition 100, a state constitutional provision to raise the state’s sales tax rate for three years by one cent per dollar paid for purchases.
The one-cent increase in Arizona’s sales tax rate is estimated to raise $918 million in revenue for fiscal year 2011, only partially closing a budget gap of $2.7 billion. The rest will be closed with minor fee increases, the transfer of $500 million in accumulated fund balances, and approximately $1 billion in budget cuts. Two more propositions will have to be approved by voters in November in order for $450 million of the fund transfers to occur.
Supporters Raise $2 Million
Advocates for the tax increase far outspent those in opposition. The Yes on 100 campaign raised $2 million to support the proposition, whereas the Ax the Tax organization reported only $12,000 in contributions to oppose the measure. Much of the campaign hinged on likely cuts to public education if the proposition failed.
“The private sector was battered, beaten, and bruised, so they weren’t able to dump scarce resources on a political campaign,” said Steve Voeller, president of the Arizona Free Enterprise Club, a supporter of the Ax the Tax campaign.
Supporters of the temporary tax increase included the state’s Chamber of Commerce, the state’s teacher union, the firefighters’ union, and a host of education and health activists. Supporters also included Gov. Jan Brewer (R), who had spent more than a year fighting for a higher sales tax. She participated in television and radio commercials and print mailers backing the tax increase.
Darcy Olsen, president of the Goldwater Institute, an independent, free-market think tank in Arizona, expressed great concern over Prop 100’s potential impact on the state’s economy.
Job Losses Expected
“Hundreds of Arizona storefronts have closed in the past few years as Arizonans cut their spending,” said Olsen. “The 20 percent sales tax increase is the equivalent of a new $350 bill for most families. We estimate the impact on small businesses will be a loss of 14,000 jobs.”
Arizona has been suffering from one of the worst state budget reversals in the nation. Revenues have dropped by one-third since the recession began, largely as a result of the collapse of the Arizona housing market.
Until the collapse, record state revenue growth had led to rapid increases in state spending.
“Without a genuine spending limit, Arizona spent every dime during the boom years. The size of government grew 30 percent in real terms over the past decade. When the economy invariably slowed, the state’s coffers were empty, but the bills kept coming,” said Olsen.
Byron Schlomach ([email protected]) is an economist and director of the Center for Economic Prosperity at the Goldwater Institute.