Over the years, our legislators in Phoenix have worked to get our state’s total debt under control and curb unnecessary spending. So when Secretary of Education Arne Duncan visited Arizona last week to promote his early-learning initiative, it should give us all some pause to look more closely at the numbers behind the program.
The first number that we should become familiar with is $75 billion — that is the amount this plan is expected to cost in federal tax dollars. However, the more important and unknown number is the staggering costs states will have to bear over the next 10 years to help pay for it — a cost that undoubtedly will be shouldered by our businesses and residents through higher state taxes.
Everyone supports giving children every educational advantage possible from the earliest possible age, but the initiative is fundamentally flawed. Fortunately, participation in this early-learning initiative is optional on a state-by-state basis. Arizona could wisely choose to not take part and consequently avoid the gargantuan costs that accompany it.
The program’s expenses build up slowly but surely over the years. In the first year, the federal government will cover 90 percent of the associated costs, leaving just 10 percent for the state budget to cover. By year 10, the distribution of the program cost is nearly the opposite of where it began. At that point, each participating state’s portion of the bill swells to 75 percent of the cost, putting an incredible strain on states’ annual budgets.
Therefore, the decision to commit to the program and its costs for 10 years could account for a multitude of additional expenses our state would have to face in 2023. This is like a home mortgage with a five-year ARM — the payments escalate in year 6 and beyond.
The federal plan for funding is equally problematic. The president and Secretary Duncan have advocated for increasing the federal excise tax on cigarettes by 93 percent to pay for their program. What’s lost in their math are the untold millions of dollars that may end up missing from this revenue stream if adult tobacco consumers shift their purchases to less expensive products and distribution channels, both legal and illegal.
If cigarette taxes are increased, adult smokers could decide to cross state borders, make purchases online, or look to the black market to avoid excessively high tobacco tax rates. Each of these alternatives could diminish a sizeable amount of expected revenue and cause policymakers to take more drastic steps. In fact, a recent National Taxpayers Union analysis found that as revenue projections from cigarette tax hikes come up short, policymakers may seek additional taxpayer dollars through more tax increases to make up the difference.
What’s more, an increase in illegal black market tobacco sales spurred by tobacco tax increases could cause serious economic repercussions for thousands of retailers and convenience stores across the state. It would make it difficult for these hardworking small businesses to operate, considering that, nationwide, nearly 40 percent of their in-store sales come from the sale of tobacco products to adult consumers.
As much as we all want to promote better educational programs, we need to get government spending under control before we raise any taxes or create more programs. Arizona simply cannot afford the president’s flawed funding proposal for this program, or else we could be paying back additional debt incurred for many years to come. Much like a home, a financial risk this large should have a great foundation. The poorly-planned
93 percent federal tax increase on cigarettes does not make this plan any sounder. It actually makes it more unsustainable.
— Joe Galli, executive director, North Scottsdale Chamber of Commerce.