Arizona Policy Choices

Balancing Acts: Tax Cuts and Public Policy in Arizona

 

A Sober Case for Tax Cut Policies

Robert Robb, Editorial Writer
The Arizona Republic

Framing the Issue

The moral appropriateness and practical effects of tax cuts, particularly individual tax cuts that lower marginal tax rates, have been topics of significant public policy debate over the last two decades. This is also a period of time in which we have had significant experience with tax cuts at both a national and state level, including here in Arizona, from which we can learn.

The case for tax cuts is in part moral. This is a nation expressly founded on a concept of individual liberty and natural rights, including the right to keep and control the fruits of one's labor. Excessive taxation is a deprivation of individual liberty and a violation of individual natural rights.

The case for tax cuts is in part moral. This is a nation expressly founded on a concept of individual liberty and natural rights, including the right to keep and control the fruits of one's labor.

The case for tax cuts is also in part practical: that tax cuts encourage and create productive economic activity whose beneficial effects are broadly experienced within the body politic.

Unfortunately, much of this public policy debate has occurred at the theoretical level, a battle of competing econometric models. Model A says that tax cuts do not stimulate the economy or produce beneficial economic activity, but do rob the government of revenue and increase governmental debt, thereby actually damaging economic performance. Model B says, au contraire, tax cuts increase the GNP, increase incomes, and stimulate economic activity, thereby actually providing government with increased revenues. (Although, in fairness, most advocates of Model B would not find the prospects of a government deprived of some of its revenue a particularly unfortunate event.)

It is well past time for laymen to realize that these models, indeed any specific prediction of an economic future, are utterly useless. The outcomes of the models are predicated by their assumptions, which are largely driven a priori by the modeler's beliefs about economic behavior. There is one thing about which we can be confident regarding almost any economic prediction or projection: It will be wrong, and probably grossly so.

Given the nature of a free economy, this should be surprising only to professional economists. An economy is the amalgamation of millions of individual decisions, billions or trillions at the national level, made daily about economic matters: Do I buy this or that? Do I take this job or the other one? Do I purchase this stock or bond? Do I buy a new home or do I put away money in my 401(k)? Trying to guess the cumulative outcome of the millions, billions, or trillions of individual daily decisions made over any future time period is a fool's errand.

Indeed, the case for tax cuts does not truly rest with such econometric models, although advocates have cobbled a few together so as not to be completely disarmed in this futile soothsaying competition. Instead, the case for tax cuts is rooted in an understanding of the complexity of economic activity, and how markets and human behavior interconnect and interact.

While we cannot project with any precision future economic activity on a macro level, we can reasonably expect that if we change incentives, rewards, and punishments, we can change behavior. The practical case for tax cuts is easily stated and easily understood: If we increase the financial rewards of economically beneficial behavior hard work, entrepreneurship, innovation, thrift we will get more of it. While any tax cut that increases revenue left in the private sector will have beneficial economic effects and the moral advantage of restoring to individuals a larger measure of the fruits of their labor, tax cut advocates generally give primacy to cuts in individual income taxes, particularly ones which lower marginal tax rates.

The reasons for this are more complicated than usually thought. Such cuts in individual income taxes will do the most to encourage and stimulate the desired economically beneficial behavior by individuals hard work, entrepreneurship, innovation, and thrift. Additionally, a large segment of small businesses, which have been the driving force behind economic growth and expansion over the last couple of decades, choose forms of corporate governance, such as Subchapter S corporations, in which the business income flows to the owners and is taxed as individual income, not as corporate income. Therefore, cuts in individual income tax rates also directly affect the economic activity of some of our most creative and innovative corporations.

Therefore, cuts in individual income tax rates also directly affect the economic activity of some of our most creative and innovative corporations.

This is not to say that cuts in other taxes are not valuable. The double taxation of corporate income and taxing the inflation-driven increment of capital gains are particularly deleterious to beneficial economic activity. But it is to say that it is appropriate for primacy to be given to individual income tax cuts, particularly those that lower marginal rates.

Then there is the issue of the effect that tax cuts have on government revenue. Most tax cut advocates, if they were honest, would confess that they don't care. If the result of tax cuts is to reduce government revenue, resulting in a smaller and less intrusive government, that is simply an added benefit. But many of our fellow citizens are concerned about the effect tax cuts have on government revenue and therefore government programs. So this has become very much part of the debate.

Usually the effects of tax cuts are calculated based on what is known as a "static" analysis. In other words, if these tax cuts had been in effect over the last year, and economic behavior did not change as a result, the government would have gotten this much less revenue. However, economic behavior does change as a result of tax cuts, a concession made by even the most ardent opponent of tax cuts as public policy. The question is: How much does economic behavior change, and what are the consequences of that change for government revenue.

Tax cut advocates believe Americans are significantly overtaxed, which suppresses economically beneficial behavior. The result of tax cuts, therefore, will be to stimulate economically beneficial behavior in a way that increases economic growth and activity, which in turn increases the yield the government gets from taxes.

Too often, this "dynamic" view of the effect of tax cuts on government revenue is caricatured as claiming that "tax cuts pay for themselves" in terms of short-term government revenue. And indeed, there are some incautious tax cut advocates who do claim exactly that.

More cautious advocates (including me) do not claim that this so-called "feedback" effect fully restores government revenue in the short term. For one thing, since it is impossible to know what the economic future actually holds, it is impossible to know whether tax cuts have fully restored government revenue, since we do not truly know what it would have been.

The more cautious claim is that a "static" analysis will significantly overstate the adverse effect on government revenue from tax cuts, as well as significantly overstate the increase in government revenue from tax increases. Additionally, in the long term, government revenue will indeed be more than otherwise would have been the case if, in an overtaxed economy, taxes were not reduced. Not that this is necessarily a good outcome; just that it is a likely one.

Another issue in the debate is whether states can affect the performance of their own local economy through tax cuts, or whether such state changes are overwhelmed by national and regional economic trends and federal tax policy. Tax cut advocates do not deny the significant influence of larger economic trends and federal tax policy on the performance of local economies, but do believe that local tax policy can make material differences in local economic performance.

As mentioned, there is now significant experience with tax cuts at both a national and state level, including Arizona, over the last two decades. Here is what that experience, properly analyzed and understood, tells us.

National Experience

Much to the amazement and consternation of the liberal academic, media, and political establishments, Ronald Reagan was elected President of the United States in November of 1980. He was inaugurated in January, 1981, and the Reagan tax cut plan was enacted in October of that year.

To be sure, much was added to the bill that went beyond the central idea on which Ronald Reagan ran, and which had been intellectually developed and popularized by Jack Kemp over the course of the latter part of the 1970s: Significant, across-the-board cuts in individual income tax rates. But to a tax cut, limited-government advocate, it was kind of refreshing to see Congress in a feeding frenzy to give taxpayers back their money rather than to spend it.

The Reagan tax cut era was ended with the budget agreement of 1990, in which George Bush agreed to an increase in marginal individual income tax rates. In the interim, there were a number of tax changes enacted, some of them quite significant, such as the Tax Reform Act of 1986. Tax increases also were enacted, particularly in 1984. However, until the Budget Reconciliation Act of 1990, none of the interim tax changes repudiated the heart of the Reagan tax cut program, significantly lowering marginal tax rates, and some including the Tax Reform Act of 1986 even advanced the cause a bit.

The personal income tax reductions contained in the 1981 law were phased in over three years, with very small cuts in the initial year. As a result of increases in social security taxes, previously enacted, and the effect of "bracket creep" (inflation placing taxpayers in a higher tax bracket), most Americans did not experience a reduction in federal taxes on their personal income until 1983.1

The Reagan tax cuts followed one of the most dismal periods in American economic history. In 1980, inflation was 13.5 percent, and the prime interest rate hit 21.5 percent.2 In the decade preceding the full implementation of the Reagan tax cuts, the economy grew at a rate of only 1.6 percent per year, and in four of those years real gross national product actually declined.3

Nor, contrary to the common caricature, did this growth accrue entirely or even disproportionately to upper-income Americans. If you divide Americans into fifths based upon annual income, each quintile saw real increases in income during the Reagan tax cut era.

During the seven years of the Reagan tax cut era,4 gross national product (GNP) grew 31 percent in real terms 3.8 percent a year. Real disposable income per capita grew by nearly a fifth.5

Nor, contrary to the common caricature, did this growth accrue entirely or even disproportionately to upper-income Americans. If you divide Americans into fifths based upon annual income, each quintile saw real increases in income during the Reagan tax cut era.6

At the end of the Reagan tax cut era, there were 3.8 million fewer Americans living in poverty, and the percentage of Americans living in poverty dropped from 15.2 percent at the beginning of the Reagan tax cut era to 12.8 percent at its inglorious end.7

Was it a "decade of greed"? Actually, it was only seven years, and charitable giving grew 5.1 percent a year, compared to an average of 3.5 percent over the previous 25 years.8

What happened to federal government revenues during this period? Sadly, they grew at an average rate of 8 percent a year.9 Nominal GNP growth during the seven-year period was 102 percent. Nominal federal tax receipts grew by 99 percent during the same period.10

So, if one is to argue that the Reagan tax cuts deprived the federal government of essential revenue, one must argue that the federal government needed to absorb a much larger percentage of national resources than it confiscated in 1982. One can argue that, just don't expect much applause.

There was one significant change in federal income tax receipts during the Reagan tax cut era: higher income Americans paid a greater percentage of federal personal income taxes than they had before. In 1982, the top 5 percent of income earners paid 36 percent of federal income taxes. In 1989, they paid 44 percent. The portion of federal income taxes paid by the top 1 percent of income earners increased from 19 percent to over 25 percent.11

And what about those soaring deficits? Well, they weren't caused by a deprivation of revenue, witness the 8 percent growth per annum in federal tax collections. In fact, tax revenues were at approximately 19 percent of GNP at the beginning of the Reagan tax cut era and remained at approximately that figure at its end. Federal spending, however, increased from approximately 21 percent of GNP at the beginning of the Reagan tax cut era to approximately 23.5 percent during much of it, and rose even further, reaching as high as 25 percent, under George Bush.12

The rate of increase in federal government spending did indeed decrease under Ronald Reagan. But, sadly, in anotherwise remarkable record of achievement, taming or reforming the federal-spending machine was one that the Gipper didn't win.

The National Experience among the States

Most critics of tax cut policies will concede that, on a national level, tax cuts can stimulate economic activity in some circumstances. However, the claim is often made that tax cuts cannot have a meaningful effect on a state's economic performance; that other factors national and regional economic trends, climate (really) overwhelm the influence of any state-specific tax policy.

I have often been amused by the fact that many of the same people who argue that state tax cuts cannot have a meaningful influence on local economic performance also argue that state spending on favored government programs usually education or social services can. Apparently the tide of national economic trends that swamps the effect of state tax cuts recoils and recedes when confronted with tax expenditures.

There is no denying the large influence of national economic trends on the performance of local economies. But for those who are alert and fair-minded, there is also no denying that within the contours of national economic trends, states can meaningfully improve their economic performance through tax cut policies.

Nor is this a recent discovery. In 1981, the congressional Joint Economic Committee13 accumulated a decade's worth of research and published some original research of its own. The report compared the 16 states whose economies grew the fastest during the 1970s to the 16 states whose economies grew the slowest.

The study found that states with a low tax burden (measured as taxes as a percentage of personal income) that was falling grew the fastest: 14.5 percent above the national average. However, states with a relatively high tax burden that was decreasing grew nearly as fast, 12.5 percent above the national average. States with a relatively low tax burden but which was rising did better than the national average, but barely (1.5 percent greater growth). States with high and rising tax burdens had economies that grew 3 percent more slowly than the national average.

So, there were meaningful differences in the relative performances of state economies based upon tax policies. Low tax states did better than the national average, but states with declining burdens did significantly better than the national average regardless of where their tax burden began.

There were meaningful differences in the performance of state economies based upon their tax mixes as well. The high growth states relied far less heavily on personal income taxes, corporate income taxes, and property taxes all of which are taxes on economic productivity. Growth was most closely correlated to changes in personal income taxes and high-growth states had lower marginal personal income tax rates than slow-growth states.

The study also compared the correlation between tax burdens and the changes therein to the other factors, ones that opponents of tax cut policies often cite to explain away relative differences in economic performance among the states (such as climate, geography, federal spending, and the extent to which the local economy is dependent on manufacturing). Only relative tax burdens and the rate of change thereof, along with local saving rates, were found to be strongly correlated with growth.

The 1990s have been a particularly good period in which to study the influence of state tax policies on local economic performance. During the 1990s, federal tax policy has been in hasty retreat from the Reagan tax cut advances. The highest nominal personal income tax rate has increased from 28 percent to 39.5 percent. The actual marginal rate is even higher, since the value of some tax exemptions and deductions has been reduced for high-income filers, and they have been denied certain other tax advantages (such as tax deferred contributions to IRAs). In fact, in combination with state income taxes, the highest marginal tax rate in this country is back up to about 50 percent.

Tax cut policies have, however, rapidly spread to the states during the 1990s, including to such historically high tax bastions as New York, New Jersey, and Massachusetts. The Cato Institute recently published a study comparing the economic performance of the ten states that cut taxes the most from 1990 to 1995 to the ten state that raised taxes the most.14

The economies of tax cutting states grew faster than those of tax-increasing states (32.6 percent growth vs. 27 percent). Tax cutting states had faster growth in per capita personal income (23.4 percent vs. 21.8 percent) and less unemployment (4.7 percent vs. 6.0 percent).

The most startling finding had to do with job creation. Tax cutting states had over a ten percent increase in jobs. Tax increasing states had no net increase in jobs during a period in which the national economy experienced nearly a six percent increase.

Over the course of time, these small increments of improved economic performances resulting from low tax and tax cutting state policies become very meaningful. A recent update of the Joint Economic Committee report 15 found that over a three-decade period, the economies of low tax states had grown one-third faster than those of high tax states, resulting in higher per capita income growth of $2,300, or over $9,000 a year for a family of four.

The Arizona Experience

Arizona offers an excellent case study in how state tax policy can influence the performance of the local economy. In 1978, the passage of Proposition 13 in California, sharply limiting property taxes, ushered in at least a brief period of fiscal restraint among state governments across the country. Arizona had already taken the first step toward fiscal restraint with the passage of a constitutional limitation on state spending in 1978.

In 1980, the legislature referred to the voters, who in turn approved, a constitutional property tax limitation and an extension of the spending limit concept to local government. By 1983, the era, or perhaps episode would be more accurate, of restraint was over. That year the legislature "temporarily" increased the state sales tax by 25 percent, an increase that was made permanent the following year.

Various tax increases followed during the 1980s, including increases in personal income taxes. In several of those years, mid-term tax and budget adjustments were required, when revenues failed to meet expectations or the spending appetites of lawmakers. By the end of the decade, lawmakers and fiscal policymakers were muttering about a thing they called a "structural deficit": an alleged permanent and growing gap between what existing tax rates would produce and what state government needed to spend.

A blue-ribbon committee was convened to bless this point of view with a mammoth study called "Fiscal 2000," which engaged in a variety of intellectual contortions to demonstrate that Arizonans were undertaxed compared to residents of other states. Moreover, Arizona state government relied too extensively on the sales tax (which, despite being overrelied upon, nevertheless needed to apply to more transactions), and needed to tax income and property more heavily.

This was pretty much the state of affairs when Fife Symington was elected governor in a run-off election in January of 1991. Symington didn't take office until March of that year, and therefore had minimal influence on that year's tax policy and budget.

But 1992 was the beginning of a tax cutting era in Arizona. Since 1992, individual income tax rates have been reduced more than 25 percent across the board and major property tax reductions have been enacted as well.

So, 1983 1991 can be described fairly as a period in which taxes were increasing and the expectation was that they would continue to increase, while 1992 1997 can be described fairly as a period in which taxes have been cut and the expectation has been that they will be cut further.

Comparing the relative performance of the Arizona economy during these two periods yields what should by now be a familiar story. During the tax cut period, real per capita income has grown faster (2.0 percent a year) than during the tax increase period (1.7 percent).16 More dramatically, real earnings per employee have grown 1.2 percent a year during the tax cut period, compared to virtually no growth (0.1 percent) during the tax increase period17 (see Tables 1 and 2).

Source: Calculated from State Personal Income, U.S. Department of Commerce, Bureau of Economic Analysis, 1996.

 

Source: Calculated from State Personal Income, U.S. Department of Commerce, Bureau of Economic Analysis, 1996.

These comparisons actually understate the economic benefits of Arizona's tax cut policies. The early years of the tax cut period were relatively timid and did not directly target marginal income tax rates. Substantial reductions in marginal income tax rates came in the latter years of the tax cut period, and the improvements in economic performance have accelerated as they have gone into effect.

Lest these differences in economic performance be thought trivial, a mere 1 percent per year increase in earnings over a five-year period, for example, means over $6000 in cumulative additional income for a family making $40,000 a year at the beginning of the period.

Most revealing is the comparison of the performance of Arizona's economy to the national economy during these two periods. During the tax increase period, the Arizona economy lagged behind the national average in real per capita income growth and in increases in earnings per employee. During the tax cut period, however, Arizona has outperformed the national average in both categories.

It must be remembered that most of Arizona's tax increase period overlaid a period of tax cuts at the national level, while our period of tax cuts have occurred during a period of tax increases at the national level. So, Arizona's economy performed worse than the national economy when we were raising taxes while the feds were cutting, and performed better when we were cutting taxes and the feds were raising theirs. At some point, the accumulated evidence becomes so overwhelming that only the willfully stubborn and the ideologically blind can deny that state tax cutting policies improve local economic performance.

So, what has happened to state revenues during this period of tax cuts? The cuts have occurred primarily in personal income taxes. Overall, despite over a 25 percent decrease in rates, personal income tax collections have increased 20.2 percent since 1991. The combined rate of population growth and inflation during the period was 29.3 percent.18 So, one could perhaps argue that the tax cuts have cost the state about 9.1 percent in annual revenue from what might have been expected without the tax cuts. But that's a far cry from the gargantuan sums static analyses claim that the tax cuts have cost state government in revenue.

Moreover, once again, the "feedback" effect has accelerated over time. Based upon the most recent estimates of current year increased tax collections, the loss of state revenue over what would have been projected based upon intervening population increases and inflation will be less than one percent.

And even this may overstate the loss, since 1991 was an unusually high year for personal income tax collections. Real per capita personal income collections in 1996 were below what they were in 1991, but above what they were in 1990 and any other year during the tax increase period.

And this also ignores the effect improved economic performance has on tax collections from other sources. Total state revenue from local sources has grown faster than population and inflation during the Symington tax cut era.

Often the benefits of tax cuts to individuals are also subjected to an unfair static analysis. This takes the form of assuming that an individual makes the same amount of money after a tax cut as before and concluding that the only benefit of a tax cut to that individual is the difference in taxes paid under the lower rate compared to the higher previous rate. Following such an analysis, critics dismissed the value of the early Symington tax cuts, when the rate reductions were rather small to the average Arizonan.

For some reason, when opponents want to dismiss the value of tax cuts to individuals, they always measure them in terms of six packs of beer or steak dinners. Never mind for a moment that six packs and steak dinners are meaningful and valuable commodities to many people. Reductions in tax liability are only part of the benefit individuals derive from tax cut policies. The evidence is overwhelming that tax cut policies increase incomes, create jobs, and expand entrepreneurial opportunities.

But even using a static analysis, the cumulative benefits of the Symington tax cuts on reducing state income taxes for individuals has become meaningful to all but the most obdurate of critics. At a taxable income of $25,000, the annual savings is now $255 a year; taxable income of $40,000, $458 in savings; and at $75,000, the savings is $1068 (see Table 3).

 

Table 3
Annual Savings from Symington Tax Cuts

Income

Annual Tax Savings

$25,000

$255

$40,000

$458

$75,000

$1,068

That's a lot of six packs and steak dinners.

Conclusion

The lessons of the last several decades are clear:

  • Tax cuts, particularly reductions in marginal personal income tax rates, can meaningfully improve economic performance;
  • The benefits of improved economic performance are felt broadly throughout the body politic;
  • The tax load isn't shifted to lower income taxpayers;
  • States can improve the economic performance of their local economies by pursuing tax cut policies; and
  • The governmental revenue loss from tax cuts is likely to be significantly less than projected (as the increase in revenue from tax increases is likely to be greatly overstated).

This, of course, is the practical case for tax cut policies. An even more powerful moral case can be made. Sadly, it is rarely made, because the language of liberty, which propelled our country into being, seems to have no place in the political discourse of today.

Ours is a nation founded explicitly on the belief that we have a natural right to liberty, including the right to keep and control the fruits of our own labor.

The level at which taxation becomes a deprivation of liberty is something which is felt, intuited, not something that is deduced from abstract principles. However, there is a remarkable shared sense among Americans as to where this line might lie.

In 1996, Reader's Digest sponsored a public opinion poll that asked what was the maximum percentage of a family's income that should be consumed by taxes from all sources, regardless of how much money the family makes.19 The answer was remarkably consistent across all demographic categories age, income, sex, level of education, ethnicity: government taxes from all sources should not consume more than 25 percent of a family's income, even if that family makes more than $200,000 a year. The reason: It just isn't right.

Well, actual tax levels vastly exceed what the American people regard as morally right, and for average families, not just the wealthy. The average American family pays more than a third of their income in taxes.20

Existing marginal tax rates are also a deprivation of liberty. With the Bush-Clinton increases in the federal marginal tax rates, the government asserts the right to confiscate about 50 percent of each additional dollar some Americans make. I don't care how rich someone is, that's just not right.

Our founding fathers, who took to the bushes over tea and stamp taxes, would have their muskets cocked and loaded.

The architects of the federal income tax would be dumbfounded. For 137 years in this country, a federal income tax was unconstitutional. During congressional debate on the constitutional amendment establishing the federal income tax, a provision limiting the maximum levy to 10 percent of income was rejected, on the basis that if such a cap was included, some future Congress might actually think that such a ridiculously high figure was acceptable. Oh, to be able to turn back the clock and remake that decision!

This is, of course, a different era, with different expectations of government. It is beyond the reach of this paper to examine whether government programs are efficiently achieving their intended purposes. A serious case can be made, for example, that low-income Americans are hurt more than they are helped by government programs designed to assist them.

Irrespective, however, of whether government programs are efficient or accomplishing their purpose, an America true to the principles on which she was founded would recognize limits on the amount of government we can decide to purchase through our democratic processes. And one of those limits would be the point at which the cost starts meaningfully to deprive Americans of the right to keep and control the fruits of their labor.

We are well past that point in America today. The tax cut policies pursued by Ronald Reagan and Fife Symington not only have had beneficial practical effects, they also restored an important measure of liberty.

More, much more, is needed.


Notes

  1. Robert L. Bartley, The Seven Fat Years: and How to Do It Again, (New York: Free Press, 1992), p. 167.
  2. Bartley, p. 163.
  3. Bartley, p. 26.
  4. Opponents of tax cut policies often quarrel with 1983 as the beginning point for an analysis such as this, since it fails to account for the 81 82 recession. However, as unfair as it might be to saddle policies that hadn't even taken effect yet with that period's performance, even doing so does not change the broad trends and directions of economic performance discussed herein. See William A. Niskanen and Stephen Moore, Cato Policy Analysis No. 261: Supply Side Tax Cuts and the Truth about the Reagan Economic Record, (Washington, DC: Cato Institute, 1996).
  5. Bartley, pp. 4, 6
  6. This and the remarkable mobility between strata are probably the most undertold and misunderstood aspects of the Reagan tax cut record. See Niskanen and Moore, pp. 24 26. Also Alan Reynolds, "Upstarts and Downstarts," National Review (August 31, 1992): p. 25 and Ed Rubinstein, "Moving Up," National Review (August 31, 1992): p. 47.
  7. Ed Rubinstein, "Race and Poverty," National Review (August 31, 1992): p. 42.
  8. Bartley, p. 5. See also Richard McKensie, "Decade of Greed," National Review (August 31, 1992): p. 36.
  9. Norman Ture, "To Cut and to Please," National Review (August 31, 1992): p. 36.
  10. Bartley, p. 5.
  11. Bruce Bartlett, Cato Policy Analysis No. 192: The Futility of Raising Tax Rates, (Washington, DC: Cato Institute, 1993), p.3.
  12. Budget of the U.S. Government, 1992, Historical Tables, Table 1.2.
  13. State and Local Economic Development Strategy: A Supply Side Perspective, (Joint Economic Committee, Congress of the United States, October 26, 1981).
  14. Stephen Moore and Dean Stangel, Tax Cuts and Balanced Budgets: Lessons From the States, (Washington, DC: Cato Institute, 1996).
  15. Richard Vedder, State and Local Taxation and Economic Growth: Lessons for Federal Tax Reform, (Joint Economic Committee, Congress of the United States, December 1995).
  16. Calculations from data contained in State Personal Income, U.S. Department of Commerce, Bureau of Economic Analysis, 1996.
  17. Ibid.
  18. Individual income tax collection figures drawn from Arizona Department of Revenue documents; population figures are from the Center for Business Research, ASU; and the national GDP implicit price deflator was used as the measure of inflation.
  19. Rachel Wildavsky, "How Fair Are Our Taxes," Readers Digest (February 1996): pps. 57 61.
  20. Increased Income Means Increased Taxes for Median Family in 1996, Tax Foundation. Actually, the Tax Foundation puts the average family tax burden at above 38 percent of income. Certain liberal think tanks challenge the Tax Foundation's methodology, but even their own approach puts the average tax burden at above a third of family income. See Richard Kogan, What Do People Pay in Taxes? (Washington, DC: Center on Budget and Policy Priorities, 1996).

The author gratefully acknowledges the excellent and indispensable research assistance of Craig Sanderson in the preparation of this paper, but hastens to exonerate him from the presentation and analysis of the data contained herein as well as the conclusions drawn and views expressed.

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Morrison Institute for Public Policy