Originally Published: December 19, 2016 6 a.m.
PHOENIX – Hoping Arizonans will have had their fill of Republican policies by 2018, Tucson Democrat Steve Farley is weighing a bid to make incumbent Doug Ducey a one-term governor.
Farley told Capitol Media Services this past week that the tax cuts enacted during Ducey’s administration have left the state’s K-12 and higher education system without the funds it needs.
Instead, he said, the governor’s policies seem to rely on the idea that tax breaks will grow the economy through new corporations moving here. In fact, Ducey has not only promised to propose tax cuts every year he is governor but said he will drive the state income tax rate to “as close to zero as possible.”
Farley said that recipe makes no sense.
“The large corporations won’t come here anymore if we don’t have a workforce that’s trained to be able to work for them,” he said.
An aide to the governor declined to comment. And while Ducey has made no formal announcement of his 2018 plans he already has formed a campaign committee.
Farley, first elected to the House in 2007 and a state senator since 2013, could face a demograpics problem.
There are more than 1.2 million Republicans registered to vote in the state. Democrats, with nearly 1.1 million registered voters, actually trail independents by nearly 128,000.
But Farley said it works to his advantage that the state’s gubernatorial race is not the same year as the presidential contest.
“Traditionally, when you look at the first off-year presidential election for this state, folks go heavily against the party in power in D.C.,” he said. And Farley is counting on disenchantment with both the Trump administration and the Republican-controlled U.S. House and Senate.
He also pointed out that the last time Arizona voters choose a Democrat for governor was in 2002 – and again in 2006 – electing Janet Napolitano. And both years there was a Republican in the White House.
Farley is focused on the state’s tax policies and how he believes they can be improved. He conceded that by the time of the 2018 election many of the tax cuts previously approved by the Republican-controlled legislature will already have kicked in. That includes a 30 percent reduction in the corporate income tax rate and a change in the law that allows some manufacturers who do not sell their products in Arizona to entirely escape state corporate income taxes.
“Yeah, but it could get much worse if he gets re-elected and carries through on his promise to eliminate the state income tax,” Farley said.
But the Tucson Democrat is looking at doing more than simply keeping tax rates from going any lower. He is targeting the exemptions on what is subject to the state sales tax.
Calculations by Capitol Media Services show that if every transaction were subject to the state’s 5.6 percent sales tax, the state would collect at least $12.2 billion more a year. That compares with $4.3 billion the state actually took in last budget year.
Farley calls those exemptions “loopholes.”
He conceded, however, there are reasons behind some of those exemptions, including political.
For example, Arizona does not tax the sale of food from grocery stores intended for home consumption. The Department of Revenue estimates that eliminating that exemption would bring in about $414 million a year.
Then there are policy decisions like taxing only the final purchase. That compares with a European system of “value-added” taxes, where every transaction is taxed each time a product or service changes hands.
That exemption adds up to $4.1 billion.
And services also are generally exempt, including nearly $2 billion that would be collected from medical and hospital services and another $1 billion in professional, scientific and technical services.
But Farley said there’s probably $2 billion to $3 billion in “low-hanging fruit.” One particular target is the $1.5 billion exemption for the sale of pipes and valves 4 inches in diameter – not larger or smaller – to transport oil, natural gas or coal slurry.
“We could actually reduce the overall sales tax rate and cut out a bunch of these loopholes that aren’t doing anything for the economy ... and gain revenue while reducing the rate,” he said.
Political party registration aside, Farley faces another hurdle. The last time Arizona voters elected someone from Southern Arizona for governor was in 1974 when they tapped Democrat Raul Castro.