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home : opinions : columns August 28, 2014

4/17/2012 10:56:00 PM
Column: Arizona's taxes are upside down

Tom Cantlon
Courier Columnist

Well, it looks like the tax may hit the fan in October. The Legislature has passed a bill authorizing a committee to study state taxes, to be completed in October. That in turn will likely be used as rationale for cutting taxes for the top.

In fact, the bill originally had a clause about "the phasing out of the individual and corporate income tax and the broadening of the (sales) tax." Those clauses have been removed to make it seem more neutral, but it indicates the direction the authors want it to go.

The problem is state taxes are already upside down and the intent of the authors would only make it worse. To explain:

Suppose an upside-down income tax was proposed. By upside down I mean the lower your income, the higher your rate. If you have a million-dollar income you owe 4 percent. If you're a dishwasher with a $20,000 income, instead of owing a lower rate, you owe a higher rate. A much higher rate. Say 12 percent.

That's exactly the way total taxes in the state operate now. The income tax is slightly progressive, but what turns it all upside down are the many other taxes, which tend to hit low-income people harder. Especially sales tax.

Even people who are pretty good with finances have a hard time wrapping their head around this one, so don't take offense if I walk through this slowly.

Everyone thinks a sales tax is flat. It's 8 percent. Or close to that, depending on your area. So everyone pays, say, 8 percent. What could be more flat? Right? Except it's 8 percent taxed on money you spend. What if you don't spend all your money? What if you can afford to save a tenth of it? So you pay 8 percent tax on the money you spend, and no sales tax on the part you save.

Someone who makes less than you and can't afford to save anything must use it all just to get by and so pays 8 percent in sales tax on all of their income. (Some food and basics are not taxed, but it's not enough to change the picture.) You, on the other hand, pay 8 percent only on the money you spend, and pay no sales tax on the tenth of your money you save. If you calculate that you find, of your total income, about 7 percent goes to sales tax. That is, nine-tenths of your money is taxed at 8 percent, and one-tenth is not taxed. That averages out to about 7 percent of your income went to sales tax.

So you pay 7 percent, and someone with less income than you pays a higher 8 percent.

Suppose someone with more income than you or I manages to save most of what they make. So they pay 8 percent tax on the smaller portion that they spend, and no sales tax on the greater part, which they save. Calculate that out and you find that, of their total income, about 3 percent is paid in sales tax.

To look at this another way, suppose a "flat" 8 percent tax was imposed on, say, diapers. It's 8 percent no matter who you are, so that's a flat tax. Right? Obviously not. It's a tax on families with little children, and zero tax on anyone else. It's a tax that doesn't apply to everyone evenly. It's the same way with sales tax. Sales tax doesn't apply to everyone evenly because only some people have to spend all of their money. For them it's an 8 percent tax. For people who can save a little, it works out to 7 percent going to sales tax. The highest earners manage to save most of their income and for them it works out to about 3 percent going to sales tax. And that's not separating out the ultra-wealthy, for whom it's much less.

When you add all state income tax, sales tax, property tax, miscellaneous taxes, etc., together, the lowest-income people pay about 12 percent of their income in state and local taxes, while the highest-income people pay only about 4 percent. (See link to related story below.)

All of this brings up many questions, which I'll get to in future columns. For now there is one obvious point. You remember the phrase, "No taxation without representation" from your school books? Well here's what's obvious about any fair tax system: No tax rate higher than those above me. That should be a simple, obvious truth, whether you're a low earner, in the middle, or even above middle. You shouldn't be paying a higher total tax rate than those above you on the income scale. Right now that's not true. We're upside down. Severely upside down. And odds are you are paying the price, and have been paying that price in a big way for many years. I'll be writing more on this. Let your legislators know you're watching what they're doing.

Tom Cantlon is a longtime local resident, business owner and writer. Contact him at TomCantlon@TomCantlon.com.

Related Stories:
• Column: Low earners pay plenty of taxes
• Column: How to end regressiveness of state taxes
• Column: Take another look at state taxes
• Letter: Columnist after pro athletes next?
• Letter: Rich pay plenty of sales taxes

Related Links:
• A study of taxes in states (see page 26 for Arizona)

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Reader Comments

Posted: Friday, April 27, 2012
Article comment by: Hokas Pokas

@ Greg Walsh:

Clearly, you have nothing of substance to add.

Please, enlighten me.

Posted: Friday, April 27, 2012
Article comment by: Greg Walsh

As a longtime reader, I find it hilarious that "Hokas Pokas", with his "you-can't-grasp-basic-arithmetic" attitude, thinks he knows more about this subject than Richard. I look forward to some schooling!

Posted: Friday, April 27, 2012
Article comment by: Hokas Pokas

@ Richard Aberdeen:

It's unfortunate you cannot grasp some basic arithmetic. That is, 27% is a bigger number than 15.5%.

In addition, you should reread some of your history books. The 91% rate during the Eisenhower presidency (Kennedy cut taxes) applied to incomes of $400K or more. This would be about $3.2M in today's dollars. In addition, I take it you are suggesting the creation of yet another tax loophole for the high income group. This is exactly what happened during the Eisenhower administration. So no one really paid 91%. This also created an incentive to avoid paying taxes by investing in tax free bonds, etc. Also, there were three recessions in his administration and GDP growth over his 8 year term averaged just 2.5%. Oh, by the way, in the 1950's the marginal tax rate for the lowest income group was 20%. So the picture is not that rosy.

Federal tax revenues went up when the Kennedy tax cuts took effect in 1964.


Posted: Thursday, April 26, 2012
Article comment by: ebeneezer Scrooge

Ladies and gentlemen - the simple fact is that no matter what the tax structure looks like someone will always be complaining - that is just human nature. As for the comments amount the French revolution - a little revolution from time to time is good for the soul. And if things keep going the way they are with the extreme polarizations on many different fronts we may likely see one here - Its long past time to put down our differences and negoiate a common ground - as has been said in the past "we all need to hang together lest we each hang seperately"

Posted: Thursday, April 26, 2012
Article comment by: open book

Dear Lyle: You might want to read up on the French Revolution.

I'm beginning to think that you are posting sarcasm, or that you have a bit of dementia.

Posted: Thursday, April 26, 2012
Article comment by: Richard Aberdeen

Great article Tom Cantlon is exactly right. Sales taxes are the very worst and most regressive anti-human rights form of taxation. The best way to tax, is to tax all excess income above 80 or so thousand dollars at 90%. This would force the filthy rich among us, who earn far more than several billion people on our planet do, to invest in job creating enterprises, to avoid paying the high taxes. Any moron who can add and subtract knows this is best for everybody in the nation, including the extreme wealthy at the top, as was clearly demonstrated during the administrations of Eisenhower and Kennedy. Now, all you whiny supply-the-wrong-side Republicans can run on home to your mommies and stop lying to the rest of us who can actually do math and otherwise, have read a history book or two. WE DON'T BELIEVE YOU !

Posted: Wednesday, April 25, 2012
Article comment by: Attentive Listener

Interesting comments.

Posted: Sunday, April 22, 2012
Article comment by: J T

sorry- Coexist to them means we have TO become more like them.

Posted: Sunday, April 22, 2012
Article comment by: J T

@one that tells--I've always been amazed how shocked people on the left are (especially those that move here from other states) when they realize that their views aren't the norm around here. I'm sure it's difficult for them to accept (most still don't). It's kinda funny actually, especially when you consider that they are the ones always preaching about tolerance and diversity. Coexist to them means that we have become more like them.

Posted: Sunday, April 22, 2012
Article comment by: Hokas Pokas

@ On That TELLS:

Ditto of what, An American, posted.

I am always impressed by how so many liberals seem to think that they are clairvoyant or prescient and rely solely on their intuition and ignore facts.

Just a thought.

Posted: Saturday, April 21, 2012
Article comment by: An American

@ Tells, It would be an honor to be confused with Chris Bergman, but I am just me.

Posted: Saturday, April 21, 2012
Article comment by: One That TELLS

Of the posts displaying on this page at the time of this writing, more than 1/3 of them were written by Chris Bergman in one incarnation or another. At what point does enough become enough?

Posted: Friday, April 20, 2012
Article comment by: Lyle Sentiss

The rich pay too much in taxes now and it is not fair. Time for the poor to take a hold and start picking up their own tab.

A person paying a million dollars a year in taxes gets the exact same things, and LESS, than someone paying no tax at all.

Time to end the unfairness.

Tax the poor for what they take and use.

Posted: Friday, April 20, 2012
Article comment by: Dear: Hokas Pokas

So did Harold Stassen...

Posted: Friday, April 20, 2012
Article comment by: Hokas Pokas

He has the courage to take a position.

Posted: Friday, April 20, 2012
Article comment by: Tommy Hidesncries

He always bails when he is losing the argument, afraid to change his position, unable to defend it.

Will he continue his unbroken streak?

My bet is YES.

Posted: Thursday, April 19, 2012
Article comment by: J T

Mr.Cantlon, with all due respect, the "rich just keep getting richer off the back of the poor" is just getting old. In life, I have experienced both sides of the coin. Before moving here I earned a very decent salary. I paid a boat load of income taxes and met the SS tax cap with ease every year. Since moving here, my income has been reduced to a level that has put me into the category of "the working poor". Now, before you say that I must be living off of savings or retirement, let me say that I (a family of 4) live solely off of current wages. Yes, I've been very fortunate in the past, but my level of living is based on current income only. Don't get me wrong. I'm not complaining one bit. I live comfortably, within my means. By gov't standards, I'm considered poor. I am in that bottom quintile that you so conveniently left out of your equation. That being said, you would be amazed at the amount of "refund" I qualified for from both the State and the Fed. Trust me when I say that neither the State nor the Fed is taking advantage of me. If you want to know who doesn't pay their fair share, it's the ones at the bottom. The one's that you claim are treated so unfairly. The ones that recieve "refunds" equal to 25% of their earnings.

I could go on and on, but I'm sure we'll never agree. 1-Everyone should pay their fair share. That includes the ones at the bottom. 2-The money people earn does not belong to the gov't (your comment to KB speaks volumes about how you seem to think the gov't is being being ripped off because someone saves their money, thus preventing the gov't from getting their fair share in taxes) 3-The ones at the bottom are given too much already and a good percentage of them have grown to expect it.

Posted: Thursday, April 19, 2012
Article comment by: Kathy Svendsen

I love your teaching columns. This is the first time I "got" how the tax system works for the benefit of the wealthy. It is really scary the Arizona state legislature wanting to examine our tax system. You can bank on it, this legislature is going to put it to the ordinary person in favor of the wealthy, same as usual.

Posted: Thursday, April 19, 2012
Article comment by: noticed something

Is it telling that this newspaper has no one but this guy to write a regular column? How about someone without a red hammer and sickle tattooed to his forehead?

Posted: Thursday, April 19, 2012
Article comment by: Hokas Pokas

@ Jeanette C:

I guess the rest of us in the 99% better get crackin'. Right?

Or would you prefer it on a silver platter or served from a silver spoon?

@ Tom C:

You do pay state income tax on savings interest and dividend income as well as capital gains.

You say, "This encourages saving which is good, but not if it comes at the price that the difference has to be made up by people just getting by."

WHAT! This statement I just can't let you get by with, Tom. You're saying if someone works hard, saves money, retires and enjoys the benefits of this, is not entitled to it? And they can't pass their legacy, that they earned, on to their children or grandchildren all because someone may be "just getting by"? That's your idea of fair? I would say that the person "just getting by" better get on the "ball" and get THEMSELVES out of the "just getting by" situation that they are in. There are plenty of ways to do it. Has it ever occurred to you that the person who earned there money was ever in the "just getting by" predicament?

Posted: Thursday, April 19, 2012
Article comment by: Hokas Pokas


Thanks for responding.

The numbers are there. The wealthy pay far more in taxes as a percentage of income. They are providing pretty much all the revenue for the federal government and almost all the revenue for the state government. In the larger scheme of things, what is creating this mess is too much government spending, but that is a subject for another day.

Some people are better looking than other people. Some would say they have an "unfair" advantage in life. Should they be handicapped? Some people are smarter. Some people are better athletes. Some people are better singers or musicians. Some people are better writers. Some people work harder. Some people simply have a desire to do something, whatever it is, better than anyone else, and they will work hard to achieve it. Should we work to limit these attibutes? Somehow penalize these people? I don't think you would.

In the same way, you will "naturally" (your word)have some people who have, or accumulate, more wealth than others. How much is too much? At what point is the difference between the rich and poor "unfair"? Who gets to decide. What is a good reward for succeeding in business or music or writing or athletics or medicine or art or science. Who gets to decide? You imply there should be limits. Why?

In this country, the opportunity exists for everyone to improve their economic position, even in today's economy. There are plenty of good paying (living wage) jobs in North and South Dakota and Wyoming. Sorry that this may require some individual effort. That's life!

Posted: Thursday, April 19, 2012
Article comment by: Dear: Tom Cantlon

You responded:

"To I Think It's Funny, you set up some straw man argument and shoot it down and then call me a hypocrite for your set up?"

Please give us your analysis as to how you perceived a Straw Man fallacy, and where you personally were called a hypocrite.

"What's not funny is your attitude toward ordinary people. Comes through loud and clear."

So, you think "ordinary people" are irresponsible breeders, or just lacking in critical thinking skills, letting emotion run their lives over reason and logic?

And you think that's "sustainable"?

I think that's even funnier.

You make me laugh.

Your attitude shines through, too.

Unrealistic. Unworkable. Unfathomable.

Posted: Thursday, April 19, 2012
Article comment by: An American

Tom, I have stated many times my opinion on income tax. Once again, every dollar earned in this nation should be taxed exactly the same, 10% is more than enough (5% if not for fraud and loopholes) to keep this nation running in the manner it is accustom to. This means every dollar earned no matter the means it was earned in, the stock market or a welfare check, makes no difference. Think the middle class and poor would go for that??.....
You know good and well that the government and liberals want votes, so they will continue to create these class issues over, "this man has more than you, that man does not pay his fair share".. I have asked here in this paper what the complainers feel is fair, pick a number then apply it to all equally, but no one will answer. They do not want equal, they only want what others have, without the effort. I often wondered if they would want the long hours, years of sacrifice, the risk and liability, the going broke and loosing everything, just to get back up and start all over again? With great success comes great sacrifice, do they want all of it or just the gravy?...... You could wipe the slate clean today, start every man woman and child with the same amount of money, in a few years things would look the same, you will have rich, middle and poor. You can not change mankind, you will never legislate their work ethics, ambitions or good sense.... It would be nice if our universities and the government would tell these youngsters that they will be "entitled" to all that they can earn, and nothing more.
Im am not clear on what argument you want, you speak of income tax, then you start in on sales tax. These are two entirely different issues. Sales tax is just that, you buy you pay. If your not happy about it, there are ways to cheat this too. I have no doubt that sometime in the near future the complainers will want a "special" sales tax rate just for them.
So Tom, what do you feel is fair, tax a percentage of every dollar earned, or tax the person based on how wealthy he is?

Posted: Thursday, April 19, 2012
Article comment by: Tom Cantlon

To KB, in addition to what "Uh KB" has said, time is indeed an important piece to look at. The money saved may be spent later and hit with sales tax, but in the meantime it gets to be used over and over to reinvest, maybe for decades sales tax free. And especially for those wealthy enough to pass on a large inheritance, it is never hit with sales tax in their lifetime. This encourages saving which is good, but not if it comes at the price that the difference has to be made up by people just getting by. Work is something to encourage too.

Posted: Thursday, April 19, 2012
Article comment by: Uh KB

The 20k dishwasher (do they even make that much?) likely pays rent--property taxes are factored in unless he is homeless.

There is tax on food. Pays taxes.
There are taxes on luxuries like toilet paper-again, taxes are paid.

I hear over and over that Freedom isn't Free. That's exactly right. Freedom costs money. The roads cost money. The street lights cost money. The police and firefighters cost money. The people who use the ER as their personal doctor cost money.

Everyone should pay their fair share.

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