Darcy Olsen

Fix Tax Climate to Foster Growth

Posted on May 25, 2003 | Type: In the News | Author: Darcy Olsen
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The current proposal to fund new facilities at state universities would cost more than $800 million. Any proposal of this magnitude deserves careful and thorough examination.

In an open letter to ASU alumni, ASU President Michael Crow asserts that the plan will "ensure the future economy of the state of Arizona." A recent Arizona Republic editorial concurs, saying that the potential "economic payoff is huge." The idea is that spending today will generate millions in sales, create jobs and raise state revenue.

By that reasoning, the state should spend millions subsidizing private companies, too. Yet, as Nobel Laureate economist Milton Friedman writes, "[H]ardly anyone would conclude that tax money should be used to subsidize the capital investment of General Motors or General Electric." As Friedman puts it, that is "simply bad economics."

To be sure, research drives discovery and innovation to the benefit of millions of people every day. However, inventors, entrepreneurs and members of the private sector have the financial means and incentive to conduct research, and are best positioned to carry the risks. Government puts every taxpayer at risk when it abandons its proper role of fostering a healthy environment for all enterprise and instead intervenes in funding and promoting particular businesses.

Calling this proposal an "entrepreneurial model," politicians speak about "investing" our tax dollars as if they were real entrepreneurs with the revolutionary vision of Henry Ford, Steve Jobs or Arizona's own Dr. John Sperling, founder of the University of Phoenix. But there is nothing entrepreneurial about a plan dreamed up by bureaucrats, paid for by taxpayers and funneled to favored interests.

Moreover, research funded through the political system invariably becomes politicized, an unfortunate phenomenon well documented in Science, Money and Politics by veteran science journalist Daniel Greenberg. This is one reason the Arizona Constitution contains a prohibition against any state association and ownership in local companies and corporations. Top-quality research must be insulated from political pressure, not driven by it.

Entrepreneurs investing their own capital have every incentive to maximize returns. Not surprisingly, then, research shows the marginal rate of return on private capital is 22 percent per year, compared with only 7 percent for public capital investment. If investing in university research facilities is sound, there will be no shortage of willing private investors, and the payoff will be greater.

The plan is even riskier given Arizona's $4 billion debt - the nation's 10th-highest level of state and local debt as a percentage of general revenue. Rather than gamble Arizona's economic future, legislators should adopt proven policies.

Arizona could become an economic powerhouse were the Legislature simply to improve the overall business climate. Our industrial, commercial and small-business property tax burdens are among the 10 highest in the nation. And our competitor states, such as Nevada and Colorado, have either no corporate income tax or much lower rates. Reducing the overall tax burden to create a favorable climate for all businesses is a fair and proven first step to economic growth.

--Olsen is president and CEO of the conservative Goldwater Institute think tank. ASU president Michael Crow's counterpoint column can be found online at: http://www.azcentral.com/arizonarepublic/viewpoints/articles/0525crow0525.html

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