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home : opinions : opinions May 22, 2015

6/19/2012 9:59:00 PM
Column: Take another look at state taxes
An Arizona Leadership Institute paper pointed out that a study of state taxes in 2003 had data that came in part from a KPMG study. The 2003 study is described and linked in the May 16 column.
Tom Cantlon
Courier Columnist

Here's a little more on state taxes, and something I wrote about flat taxes that I never thought I would.

As covered in the first two columns on this topic, total state and local taxes hit low and middle earners about twice as hard as they do the top. That's mostly because sales taxes are regressive. The explanation and original data is with those columns online, for April 18 and May 16. Adding yet another piece of confirming data this time, the Arizona Leadership Institute noted that part of the data for a state study confirming regressive taxes was done by KPMG, one of the international "big four" accounting firms. The link is online.

You might think sales tax is a flat tax but, as explained in that first column, it isn't. Since it's regressive, why have it? Visitors, that's why. We are a state with a lot of tourism and part-time residents. We need to make some revenue off of them, or at least recover some expense. Tourism is big business and a plus to the state, but for government it's an expense. They add to the wear and tear on roads and add many other expenses, plus we spend government money supporting tourism. It's the taxes, primarily sales tax, that makes it a plus.

For local governments it's similar. There are various ways to collect local taxes but if not for sales tax there wouldn't be much collected from visitors, both those from out of state, and from elsewhere in the state.

Several critical comments on the previous columns assume I'm advocating big tax increases or it's just a rationale for more government spending. There are things I think we should do more of, like spending on education, but those are separate subjects. State taxes are their own topic. It's not about more or less in total taxes. Even if we cut government services further, and cut taxes to match, we would still need to collect taxes. Changes that would make our taxes fair would not need to collect any more in total tax. It could be revenue neutral. In fact it should be. Total taxes collected and how they're spent ought to be a separate discussion. The question remains, how is that burden spread across people? Evenly? Or as it is now, harder on the middle class? Even harder on lower earners?

That brings me to flat taxes. I've always been against so called "flat" taxes because when you look at them carefully they never are. They always end up giving the middle income a bad deal. I'll continue to be against them in most contexts, but when it comes to state taxes, I'd be happy to get up to flat.

Some critical comments assume I want to soak the rich. Which is kind of funny, when you talk about how the middle and low end pay more of their income than the top and you'd like that to end, for that to get interpreted as soaking the rich. It's not about soaking the top, it's about how everyone else has been getting soaked for a long time. It's about ending that.

Some of the people who advocate flat taxes, usually referring to flattening income tax down to one bracket, seem to have no problem with the consequences. If lowering the top tax rate means less revenue, just cut spending. Or if we can't cut that much, just raise more tax on the low and middle. Mostly the middle since low earners don't have much. But point out that taxes are upside down and it would take reducing taxes on the low-to-middle or raising them on the top, or a balance of each, and suddenly you're wanting to soak the rich. No. Just bring everyone level.

It's not the fault of most rich people that the state set up a mixed up tax system. They just pay their taxes, but what they've been asked to give has not been commensurate with what others have been paying, and it's been that way for a long time. It needs to be set right.

Many people want flat taxes. Well, okay. I'm on board. I assume if you want them flat you want that no matter which way the flattening has to go.

Though if you want flat taxes you'd better start hammering that home to your representatives now, because currently they're not flat. They're upside down and the legislature is likely to make it even worse next session.

It's a simple tax principle: No one should pay a greater share of income than those above them.

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

Related Stories:
• Column: How to end regressiveness of state taxes
• Column: State taxes needn't be upside-down
• Column: Arizona's taxes are upside down

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Reader Comments

Posted: Monday, June 25, 2012
Article comment by: Hokas Pokas

True enough. However, these very rough estimates indicate that the more you make, the more you get to keep. That's called, and I'm sure you must have heard this word, "incentive".

By the way, you bet I would question ANY accounting firm. To name just one, remember Arthur Anderson? None of them have a crystal ball. You may be too young for this, but you must have heard of the bumper sticker slogan, "question authority."

Posted: Thursday, June 21, 2012
Article comment by: Tom Von Deck

@Citi Zen: The implication was not that clear. Am I an ignoramus or a disgusting liar? It's hard to infer the answer from your statements. Or, at least give me two guesses.

Posted: Thursday, June 21, 2012
Article comment by: Tom Cantlon

To Citi Zen, first, just debate, leave the name calling out of it. The "50% who don't pay" is off topic but no sense in letting misinformation stand. The 50% does include the retired, students, and disabled. It doesn't include young children living at home. It's a count of what's called tax paying units, either someone filing separately or a couple filing jointly. It was only that high at the height of the crash, which is not surprising. You should go back and look at your paycheck. Payroll taxes are about 15%. So much total payroll tax is collected that it's about 80% as much as income tax. If you look at the complete tax picture everyone is paying, and paying about equal to their portion of national income. See www.tnr.com/blog/jonathan-chait/80716/why-do-good-conservative-economists-endorse-pseudoeconomic-nonsense for a brief explanation and www.cbpp.org/cms/index.cfm?fa=view&id=3505 for some more detail on who pays.
To K B, actually the fees that you're talking about, like license fees are part of what makes the total state tax picture regressive, and I'll cover those sometime soon.
To Hokas, if you think we should extract $1000 tax from a burger flipper and, to be fair to the hedge fund manager, he should only pay the same, good luck convincing people of that, and good luck running the state on it. These studies have repeatedly found roughly the same results whether done by groups concerned about workers, or as with the 2003 study, overseen by some of the biggest business leaders and accounting firms in the state. Your figures on state income tax reflect the reality of a huge income gap. When that's the way the income is, that's the way the income tax will be. The percentages you calculated are off. You're assuming average income in the $100k and up group is $100k when the average is more like $250K. You're assuming the average income in the $40k and down group is $40K when it's more like $20K. That correction alone brings the numbers to the bottom paying about 9% and the top paying about 3%. Not the direction you want to go. If you want to challenge the numbers in the data I cited, as noted, you would have to take it up with some of the biggest accounting firms in the state, and one of the big four in the world.
To Pretty Pathetic, let me pick on you for a minute for the sake of debate, since you captured one common view in comments on these a related columns. You're right that people should work hard, take risks (where smart), and not expect gov to be the source of income. I've worked for myself my whole life (not the columns, that's a nearly free sideline). But what does that have to do with this issue? If you work hard and rely on yourself and the gov takes twice the rate from you it does from others higher up, trying to fix that is not looking to gov for a handout or trying to gouge anyone else. If the tax rate was arbitrarily high on people named "Smith", trying to fix that would simply be trying to make tax as fair for "Smiths" as anyone else. That's not an agenda I mind claiming. I suspect you would agree on this point but jumble it with a bunch of other points we might disagree on. I'd be happy to discuss those other points other times, but this issue is just that people shouldn't be paying a higher rate than those above them.

Posted: Thursday, June 21, 2012
Article comment by: R J

It's painful to pay taxes, and then see the money thrown away on frivolous projects. Arizona is one of the worst states when it comes to spending programs. We should have a vote in determining where our tax money is spent.

Posted: Thursday, June 21, 2012
Article comment by: Richard Aberdeen

The way to have a fair and just flat tax, is to grant everone, no matter how much they earn, a poverty level exemption, meaning that whatever the poverty level has been determined for where they live, they would keep 100% of their income up to that amount. And then, tax everyone the same percentage above the poverty level. This is the only way to be fair to the poor and working class while remaining fair to everyone else. It is the poor and working class who otherwise, are badly burned by an equal percentage flat tax system. And, there is no sales tax or any other taxes in a flat tax system--there is rather, only a single same percentage tax on ALL income and from there, it is divided up between federal and various states, county and local districts. And yes, tourists would pay their fair share, as would everyone else, if taxes were only collected on income at one federal percentage level only, eliminating ALL other forms of taxation, other than import and export taxes, which are necessary to insure fair trade between nations.

Posted: Thursday, June 21, 2012
Article comment by: OLDTIMER PHILLY

As a newcomer to the state of Arizona, I think the state tax is outrageous. More than New York City! Why, since this is a poorer state, along with New Mexico. Also, I was appalled at the tax on renting! Ridiculous! You want to encourage more people and jobs, not DIScourage!

Posted: Thursday, June 21, 2012
Article comment by: Ignorance is not bliss, it's just ignorance

Citi Zen: more power to you but I have given up refuting every down right lie posted by the left. There are not enough hours in the day.

Posted: Thursday, June 21, 2012
Article comment by: Les Havalook

Speaking of taxes why should we have to pay the government 10 percent for the "privilege" of putting food on the table or medicine in our body?

Posted: Thursday, June 21, 2012
Article comment by: k b

Tom Steele, those figures ($5000 sales tax and $1000 license) are chicken feed. Price a new motorhome and see what those numbers look like. We upgraded our motorhome last year. The sales tax (after a trade-in) was $14k. I just renewed the plate...to the tune of $4800 for one year in the second year! In about twenty years, we'll get down to the $1000 license fee. If we'd taken out a loan, the interest would have been deductible like a mortgage on a second home. The state treats RVers like they're driving a new Ferrari. Other states don't. Last year, we paid 27% of our income in taxes on the motorhome alone. If we'd skirted the law and registered it in Montana, that $20k tab would have been about $100.

I read columns like this and think the author is right. State taxes do punish some unfairly, just not the ones he meant.

Posted: Thursday, June 21, 2012
Article comment by: Hokas Pokas

Tom C:

STRIKE THREE! First, I don't understand how "fair" is decided by a percentage of what one earns versus one's total contribution. Second, the last time I bought a pair of socks nobody asked me how much my income was. These studies are based on estimates, assumptions and conjecture. Third, according to the Arizona Department of Revenue, in 2008, state individual income tax filers that earned more than $100K paid 61% of the state tax revenues. There were 286,089 of them for an average of $5,733 per taxpayer. For those earning $39,999 or less, all 1,370,392 of them, they provided less than 10% of the state income tax revenue. Their average tax liability was $191.45 per taxpayer. Is that fair? Fourth, again, according to the Arizona Department of Revenue in FY 2007-08 gross transaction privilege, use and severance tax collections (sales taxes) totaled $7,597,267,813. This is an average of about $1,480.00 per man, woman and child resident of the state (I am not considering tourism). I am making the assumption that all state citizens, rich or poor, spent the exact same amount on goods and services. Therefore in FY 2007-2008 an individual state income taxpayer earning more than $100K paid a total of $7,213.00 in income and sales taxes, that's 7.2% of their income. Those earning less than $39,999 paid a total of $1,671.45, which is about %4.2 of a $39,999 annual income. Please explain what, exactly, is "unfair". (I understand that a fiscal year is not the same as a tax year but for our purposes it is close enough.)

In addition, please explain, how, in a liberal mind, basic arithmetic works.


Posted: Thursday, June 21, 2012
Article comment by: Citi Zen

Von Deck, you are either a.) deliberately lying, or b.) completely ignorant of reality. Nearly 50% of adult workers (once known as "taxpayers") in this country do not pay Federal income tax. They may see a tiny bit taken out of their paycheck depending on the deductions they choose. But at tax time, they will get anything they paid back to them "refunded", while often times getting even more because of things like the Child Tax Credit. All the while, if anything is taxed on their paycheck temporarily, it's not very much. I know because I'm one of them. I made a lousy 32,000 last year and I didn't pay any Federal income tax. People that make even less don't pay any either.

Your comments suggesting that it's minor children and the elderly that make up the "50%" who don't pay Federal income tax makes you either a disgusting liar or an ignoramous of massive proportions. I think I know which it is.

Anyway, it's great to see how lame and empty the liberal arguments have become.

Posted: Wednesday, June 20, 2012
Article comment by: Much of this is pretty pathetic

You want to succeed in life? Work hard, be willing to take risks and don't spend time and energy looking for handouts. Ignore the Cantlons and Cuccias of the world. Mr. Calntlon seems like a smart guy, but he has a rather obvious political agenda that I think trumps all else. Mr. Cuccia doesn't even understand the difference between income and net worth. Being a community organizer must truly be an easy job. They need people that see themselves as "victims" to exploit for their political agenda. They will keep pitching "the deck is stacked, the tax system is unfair, etc. and so on", but I know (and I'm sure you do also) serveral very successful people that came from nothing.
They worked hard, took risks, had some luck and the "government" had little or nothing to do with it.
People that look to the government to solve their problems will always be drowning in problems. Heck, the government can't solve it's own problems. You want to do better, stop listening to those telling you it's impossible, and that it is "rich people's fault" you're where you'd like to be.

Posted: Wednesday, June 20, 2012
Article comment by: Tom Cantlon

To Hydrologist, the money you don't have to pay out any more because you've paid off your house probably got taxed as income, or is getting taxed as it comes out of a retirement fund. So that really doesn't come into the equation. The part about paying too much is a separate question. Vote for people who'll lower your taxes, but there are still going to be some taxes to collect, and right now if you're in the middle that will be about 9.5% thank you very much. If you're at the top we'll let you off with about 5.5% and don't worry about the difference. You're welcome to consider that fair. I don't think you're going to get much company from those in the middle. There are lots of other comments here about federal taxes and other topics. Enjoy your debate, just keep in mind the column is strictly about total state and local taxes and many of the statements made about taxes in general don't apply to the state picture.

Posted: Wednesday, June 20, 2012
Article comment by: Pat O'Brien

Tom, I didn't say how much anyone should pay. Even the lowest earner could pay something, yes? How about GE. They didn't pay anything. Must be great to be a mind reader and know exactly what someone is thinking without a discussion.

Posted: Wednesday, June 20, 2012
Article comment by: open book

Tom C: I was responding to Tom G.

Tom G: Yes, President Bush bailed out the auto companies with TARP money. I have said in the past that I am disappointed with the ARRA program as it did not employ as many people as I had hoped. It did give a lot of contracts out though, so somebody got paid.

Citi Zen: Would you be so kind as to point out what "sweeping changes" I have advocated for (except for single-payor national healthcare which I admit to)?

Posted: Wednesday, June 20, 2012
Article comment by: The Phantom Hydrologist

To your reply, Tom: At the risk of appearing snarky, what seems fair to you might not to me, and I will leave the perjorative political labels off. Your math analysis is fraught with this subjective notion of "Fairness" and as such isn't worth a bucket of warm spit, to quote a former Vice President. To your example of those that have more might not spend as much, and that makes sales taxes an additional burden on lower wage earners, or that somehow the people with money are paying less. I paid my house off. Should I be taxed on that additional disposable income that I used to have to give to those greedy banks? How about I paid off my house and now I don't take an mortage deduction? Is that "fair"? I don't dispute taxes and the notion that to have a vibrant, interconnected society they are necessary. I would just like a bit of a lid on it all, income. sales, property and estate taxes, as well as other so-called "use taxes" they routinely come up with. As I pointed out in my original posting, the government is going to get nearly all of it in the end anyway, and that is wrong.

Posted: Wednesday, June 20, 2012
Article comment by: Citi Zen

It's just funny to observe all the different ways the left, as represented by Cantlon, Cucci and "open book", try to manipulate the argument. It seems they'll stop at nothing to try and justify why the standard of living and quality of life in this country should be brought down for EVERYONE so that things will be more "fair" for a few at the lower end of the economic spectrum.

Of course the desires of these folks on the left will NOT make things more "fair" for anyone, including the lower income groups. The desires of the left only bring equal levels of misery. I wonder what angle Cantlon will take next week in his quest to bring Marxist values to our country. There are no perfect systems with which to manage a society. All the methods have been tried. The one we have in the U.S. has proven to be by far the best. Not perfect...won't make everyone equally happy. But it DOES provide the MOST opportunity for happiness for the MOST people. That's the best we can ask for. Sure, we can take measures to improve what we have. But Cantlon, Cucci and "open book" want sweeping, radical changes that will take us in a disasterous direction.

Posted: Wednesday, June 20, 2012
Article comment by: Hooty Hoo

Sales tax is flat, not regressive. The fact that poor pay a higher percent of their (less) income in sales tax is a "doh". And there's nothing that can be done about that except issue them a "Poor Card" that they can whip out at Home Depot so they pay less sales tax on their lawnmower. I got a "Foreigner Card" in Ireland. It cut my sales tax from 23% to half that. But I had to turn it in at the airport after I had cleared security on a flight back to America. If I don't turn it in then my CC was charged the other half of the sales tax.

Posted: Wednesday, June 20, 2012
Article comment by: Michael Wilkey

Since most of our income in this state comes from sales taxes, which especially hurts the poor and middle class, it is obvious that we need a tax system set up to make sure that the rich pay their fair share, the middle class pay their fair share and the poor their fair share.
Unfortunately everyone tries not to pay taxes, so the wealthy, who have more resources, do not pay as much as they should. We need a system set up to guarantee that everyone pays their fair share.

Posted: Wednesday, June 20, 2012
Article comment by: Tom Von Deck

@Pat O'Brien: Maybe we do need to get those other 50% of deadbeats to pay their fair share. Let's reenact child labor so that those little tykes are pulling their weight instead of using up our hard earned tax dollars in those money trap schools. No more retirement either. Work until you're dead. No SS or Medicare. Homeless? Forced labor in the prison system for you. Sounds like a great way to run a society. These are the "50%" you're talking about. People working at Burger King are paying income taxes. Thank them when you retire.

Posted: Wednesday, June 20, 2012
Article comment by: The Truth

To the community organizer: It is an "income" tax, not a "wealth "tax. I hope I don't need to help with the definition of the two words. Look at the IRS website, I'm not one of them, but it is fundamentally dishonest to not admit the "rich" already pay far more than their share in federal income tax (again note it is an income tax, not a wealth tax). I realize you have an rather obvious political bias, does it trump the simple truth?

Posted: Wednesday, June 20, 2012
Article comment by: The Rev

@Frank Cuccia Would you list the links (source) for the numbers you are citing.

Posted: Wednesday, June 20, 2012
Article comment by: Tom G

"MoveOn Council", a George Soros production?

Please, give us a break!

Posted: Wednesday, June 20, 2012
Article comment by: Frank Cuccia

Ebeneezer Scrooge??
I was going to give you an more analytical answer, but when I reread your handle: "Ebeneezer Scrooge" I just decided to keep it in terms everyone is familiar with.

Eb, I am sure you are aware that we live in a often self-described moralistic society. One purported to be built I ideas of morality, & compassion.

And as our penned Ebeneezer found out your type of thinking was "All about me thinking" certainly not a principle that the USA was built around. We are The United States of America irregardless of the efforts of people who think like you to turn us into the United States of I.

Lastly, the namesake you took comes from a book, was the author 's attempt to teach us that acting like Eb (Profit is everything) was NOT the Proper way to think.

Being Ebeneezer -like was not considered to be a Virtue, but something to be loathed. As a matter of fact most parents are seen to have a duty to teach America's children - that it isn't all about them.

FYI . Having children is to be honored & not to be considered a societal burden. The Self-involved all-about-me- Ebeneezers who want to live in The United States of I are more a detriment to the world than those the ensure humanity will live on.

Given that while Eb was a shell of a human being, he was book smart, and so I am assuming that You are NOT arguing that the American POLICIES ARE SKEWED TO FAVOR THOSE THAT have 5 children? Naw, Couldn't be!

Now to answer why should you . . . Well that is how America was built. other than the wealthy of the colonial times, Americans were one that believed in sacrifice. If neighbors needed something, the community pitched in. Today of course with such a vast country, it is impracticable to have communities to be ale to help neighbors everywhere, so we ask government to step in and help in our stead.

Also, the USA values your opinion, your voice & your vote, but they do not need your permission. It's called a democracy (Well really a corporatocracy) , some times things are passed that you won't like, and that leaves you with a couple of options, leave the country & renounce your citizenship, like the Facebook owner, or you can abide by the rules, or work to change them.

If that is what this is, it would be more honest to state clearly, that You want a Country where everyone is on his own. We can then change our Motto from "In God We Trust" to "It Sucks to Be You!"

What countries presently say Your on Your Own? Afgan, Iran, Iraq, Syria, Somalia, the Southeast Asian Muslim countries. That is a nice list to choose from or want to emulate, no?

Question: if everyone started thinking in terms of "I and had no offspring, how would we be able to afford anything or create anything. With very small labor force or with a v be h that no one could afford anything.
Of course that would be the end of corporations.

Frank Cuccia
NAZ MoveOn Council Community Organizer

Posted: Wednesday, June 20, 2012
Article comment by: Pat O'Brien

I think the simple place to start is that everyone, including corporations, should pay taxes. Roughly, and I said roughly so I don't get nit picked to death, half of all people and corporations pay no federal income tax at all. No matter how you look at it, that is hard, if not impossible, to justify.

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