Truly temporary

ten.

“On tax cuts, we have a plan,” she said. “There’s a clear agenda, there’s a road map. We don’t have that for education.”

Glenn Hamer, chairman and chief executive officer of the Arizona Chamber of Commerce and Industry, said tax cuts are helping the economy rebound by attracting more jobs to the state. The cuts include a reduction in the corporate income tax, enhanced tax credits for investment and capital-gains cuts for small business. Education, he contended, is not suffering from lower spending, saying it’s a false argument to equate higher spending with improved academic achievement.

A damper on economy?

Acommonrefrain during the debate over the temporary sales tax was that it would be another drag on an already ailing economy.

Despite an 18 percent increase in the sales tax, consumers continued to spend, and not just on the daily necessities.

Car sales weeks before the sales-tax rate was poised to drop were at their highest point since October 2007, according to the state Department of Revenue. Auto sales continued to grow almost every quarter once the tax was in place.

Economist Dennis Hoffman said the penny increase didn’t have a perceptible impact on consumer spending.

“With small changes like this, people don’t alter behavior that much,” said Hoffman, director of the L. William Seidman Research Institute at Arizona State University.

Economist Lee McPheters said it wasn’t as if the sales-tax money evaporated from the economy.

“It was probably not a drastic blow because the money stayed in the system,” said McPheters, a research professor of economics at ASU.

By propping up the education, health care and publicsafety budgets, people kept their jobs, McPheters said, which meant they had money to spend on everything from utility bills to meals out.

That said, it’s impossible to know how much better, or worse, the economy would have fared if the tax had not been in place.

Scott Drenkard, an economist with the Washington D.C.based Tax Foundation, said most studies find tax hikes do inhibit economic growth.

Rep. John Kavanagh, RFountain Hills and chairman of the House Appropriations Committee, subscribes to that theory.

An opponent of the sales-tax increase, he said he believes the tax slowed Arizona’s economic recovery.

The best medicine for a weak economy, he said, is to keep money in people’s pockets so they can spend it.

Senate President Andy Biggs, R-Gilbert, predicted it will take at least a year and a half to see any tangible economic improvement from the tax’s repeal.

And by that time, he said, any gain is likely to be eclipsed by tax increases triggered by the federal health-care law and the possible expansion of Medicaid in the state, which he opposes.

Many scoffed that a temporary tax would actually be temporary.

Recent history fueled their skepticism.

Critics pointed to sales-tax hikes for Valley transportation projects and to the previous penny increase in the state sales tax, which raised the rate to 5 cents from 4 in 1983.

A year later, lawmakers voted to make the “temporary” increase permanent.

In 2000, voters tacked on another 0.6 cents to the state rate, for teacher pay raises. That increase is due to expire in 2020.

In crafting Prop.100, Brewer added a May 31, 2013, expiration date. The measure was embedded in the state Constitution, which can only be changed by a vote of the people.

On Friday, Brewer touted her ability to keep that promise.

“Promises made, promises kept,” she said, as she tore in half a copy of the Prop. 100 ballot language that authorized the tax hike. “We won’t need that anymore.”

She said she doesn’t believe the state needs more revenue, saying the economy has turned around and “the Arizona comeback has arrived.”

“Today we have a balanced budget; we have a carryforward; we have a rainy-day fund,” she said.

Rick Murray of the Arizona Small Business Association admitted he was surprised and delighted to see the tax expire.

Murray attended Brewer’s news conference Friday to cheer its end.

“I was one of those naysayers three years ago, saying it’s hard to take money back when you give it to the government,” he said.