The Fiscal Case against Statehood: Accounting for Statehood in New Mexico and Arizona by Stephanie D. Moussalli (review)

Stephanie D. Moussalli’s study of spending changes that occurred when the territories of New Mexico and Arizona became states in 1912 tests the “Leviathan” model that predicts that with more independence under statehood their governments would increase their taxing and spending. Using Nevada, which achieved statehood much earlier during the Civil War as a control, Moussalli documents how Arizona and New Mexico after statehood increased their spending over and above what they lost in federal funding (about 10 percent of their budgets) as territories. Both New Mexico and Arizona saw a jump in the size and cost of their governments right after statehood in contrast to Nevada, which, during the same time period, showed only steady slow growth.

The loss of federal territorial funding and other related perks is one reason Moussalli gives for Puerto Rico today resisting becoming a state. While the federal subsidy for territories was a plus, drawbacks included the U.S. Congress being able to nullify laws passed by territorial legislatures, with no time limit on such nullifications.

Moussalli notes how the Progressive political movement was at its height in 1912. Unlike today, in 1912 Arizona tended to vote Democratic and supported progressive political and financial reforms, including woman suffrage, right after statehood, while New Mexico tended to vote Republican. Progressive reforms include equalization of taxation and government efficiency. Moussalli also found that statehood “dramatically changes and improves the financial reporting of government” (66) and documents how it led to better, fairer tax collection that increased tax revenues, which facilitated government expansion. She quotes C. M. Zander, one of Arizona’s first state tax commissioners and an admirer of Britain’s Liberal party prime minister Lloyd George, on income taxes:

Tremendous fortunes [were] created and handed down from generation to generation . . . which paid no taxes or tribute to federal, state or local governments. As a result we had upon the one hand a class of people restless under a smarting sense of deep injustice…and upon the other hand a class of people becoming more and more autocratic because they. . . less and less performed the greatest requirement of democracy, namely, the contribution from their wealth for the purposes of democracy

(123).

Some progressives also supported eugenics, and Arizona as a new state passed anti-miscegenation laws. Interesting sidelights in Moussalli’s study include how government funds were lost through bank failures, such as occurred during the depression of 1920–21.

The Fiscal Case Against Statehood has more than most anyone would ever want to know, even most accountants, about the fiscal affairs of New Mexico and Arizona in the early twentieth century. Moussalli concludes, “The long and short of property tax reform in New Mexico and Arizona is this: tax and other fiscal officials greatly improved the system, making it more honest, efficient, and transparent. These changes helped collect a lot more money from the people, as the officials knew it would” (127).