Longform

Fife's Myth

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On the other hand, a simple legislative majority is required to cut taxes. But cutting taxes during periods of economic expansion, particularly in a state like Arizona--where there is little slack in the economy--doesn't appear to have much of a stimulative effect, Rex says.

States with high unemployment and excess manufacturing capacity will benefit most from tax reductions. But Arizona doesn't fall into this category, Rex says.

"We are not sitting here with tons of unemployed people and underutilized resources," Rex says.

"We don't have high taxes, they are below average," he concludes.

Flush with cash, Governor Jane Hull has already indicated she plans to return a substantial portion to taxpayers.

It is a popular proposal in business circles.
"We believe that a good portion needs to go back to the taxpayers," says Arizona Chamber of Commerce spokesman Farrell Quinlan. "It's almost sort of a moral obligation."

Economists are less enthusiastic about another round of tax cuts, for a variety of reasons.

Eggert believes the state should use some of the surplus to resuscitate public education, and save the rest to provide a cushion for the next economic downturn.

"We need to be ready for the next recession," Eggert says.
ASU economists Rex and Clark say the state should be cautious in further altering its tax structure. Whatever money is given back to taxpayers, they say, would be better returned in the form of a one-time rebate rather than another tax cut.

Clark also says the state should not divert too much of its revenue stream away from the personal income tax, which provides a relatively stable tax base, and toward the sales tax, which is notoriously volatile. The sales tax already accounts for 44 percent of the state budget.

The one tax most economists agreed was too high and should be cut is the personal property tax on business.

"Business property tax is one area we are out of line with other states," Clark says.

The Legislature and Hull will likely be in a tax-cutting mode when lawmakers convene in January. Next year is an election year, and state budget analysts already are forecasting that fiscal 1998 will end with a new surplus balance of $490 million.

Projecting revenue collections is a tricky business, however.
A huge surge in personal and corporate tax collections beginning last April caught budget analysts by surprise. After several months of sorting the data, economists generally agree that the bulk of the tax collections came from stock market profits.

"Some portion of that is clearly attributable to the stock market boom," says Hull's deputy chief of staff Ted Ferris. "We got a lot of money related to the surging equity markets."

Relying on the stock market to continue to fuel unexpected state budget surpluses is a risky policy, Ferris says.

A market decline could occur at any time, and the Joint Legislative Budget Committee points to such an occurrence as a possible trigger of the next recession. A decline in the stock market could sharply reduce state revenue collections, Ferris says.

"The additional money you get from capital gains would then evaporate," Ferris says.

The state's wealthiest taxpayers benefited most from Symington's tax cuts.
Tax cuts have reduced the state personal income tax burdens for married taxpayers across the board by about 26 percent since 1990.

In dollar terms, the savings are much higher for the wealthiest taxpayers. For example, a married couple filing jointly and reporting $300,000 in taxable income in 1990 paid $19,500 in state income tax. The amount in 1997 fell to $14,400, or a $5,100 savings--or 2.6 percent of income.

A married couple making $50,000 in 1990 paid $3,250 in state income taxes. By 1997, lower tax rates reduced the payment to $1,950, a $1,300 savings--or 1.7 percent of income.

Symington's tax-cutting crusade also further enhanced the perception that Arizona is a business-friendly state.

That perception, economists say, is one of many factors companies consider when deciding to expand in or relocate operations to Arizona.

But determining how important state tax-cutting policies are in business relocation and expansion decisions is difficult.

"It's like in the business world where it's hard to measure the impact of advertising," says APS economist Pete Ewen. "Everybody is doing it and it's hard to quit."

While Symington's faithful continue to claim his tax-cutting policies should enshrine the former governor in the state's political hall of fame, perhaps a better measure of his economic clout is what effect his sudden removal has had on the state's economy.

"Zero impact," says Pollack.
Symington's conviction is just another in a long string of political and financial scandals that has rocked Arizona in the past decade.

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John Dougherty
Contact: John Dougherty