Call it a case of wishful thinking. On Tuesday, Arizonans approved Proposition 100 ("Prop 100"), a $1 billion hike in the state's sales tax. Governor Brewer and other Prop 100 proponents hailed it as necessary step to close the state's massive budget gap. The public employee unions, who make their living off of government spending, rejoiced at adoption of Prop 100. In fact, John Wright, the president of the Arizona Education Association, called it "a bridge to better economic times." But is it?
Yesterday, the media threw a little cold water on proponents' celebration. The AP reported, not to NTU's surprise, that the tax hike did not really solve the budget problem in Arizona because the tax hike does not solve address the state's "structural deficit." The AP writes:
"The structural deficit is the gap between ongoing revenue and ongoing spending. With the loss of a third of the state's revenue due to the recession, the new budget has a $2.2 billion structural deficit, even with money from the tax increase."
The structural deficit means that Arizona, even with the tax increase, continues to spend far more money than the revenue it collects. All the sales tax does is put a "band-aid" on the problem; it provides a limited infusion of revenue to fuel the state for a few months, and gives the state's politicians a small reprieve from making the cuts that are necessary to bring the budget into the black again.
What does this mean for Arizona? AP claims, "It's also clear that approval of Proposition 100 puts new pressure on lawmakers to steer clear of additional spending cuts and to consider long-term tax increases." Let's hope that, going forward, Arizona's politicians and voters realize that only through spending reductions can the state truly, and permanently, solve its structural deficit problem. As Prop 100 showed us, relying on tax increases to address budget deficits is little more than wishful thinking.
