Targeted tax cuts are good politics, poor policy

Posted on February 02, 2006 | Type: In the News | Author: Noah Clarke
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Gov. Janet Napolitano's "targeted tax relief" plan is targeted, indeed. It rewards a few people, on a few days and only for certain behaviors.

A quick look at your pay stub reveals how much taxes reduce your income. That big bite out of your take-home pay leaves less left over for hitting the beach in San Diego this summer, buying that new sofa or just taking the kids to a movie. There is probably a long list of things you can think of that you'd like to spend your money on this year. It's fair to say all workers would appreciate tax relief.

Who would get touched by Napolitano's targeted tax cut wand this year?

Hybrid-fuel car owners, to start with. The better a vehicle's gas mileage, the bigger the break in its vehicle license tax. In fact, if a vehicle gets "maximum mileage per gallon," the tax would be eliminated altogether.

But with a sticker price more than $20,000 for most hybrids, this certainly won't provide relief for lower-income Arizonans. Nor will it help a family who needs a new minivan or a construction worker who buys a new truck.

Next up is a three-day sales tax holiday for back-to-school supplies. Sure, this helps families by making pencils and backpacks cheaper, but what children need for school may be anything from new sneakers to that first band instrument.

If the point of the sales tax holiday is to help families, this could be done much more effectively through broad-based tax relief. Lowering income tax rates will help families meet their needs, whether buying school supplies or paying utility bills.

Finally, Napolitano proposes a tax credit for businesses with two to 24 employees that provide health insurance. Yet there are more than 320,000 businesses in Arizona with no employees besides the owner. There are also more than 50,000 businesses with more than 24 employees. Health-care costs are rising for all businesses, not just those with two to 24 employees. But the tax cut wand passes these other businesses by.

A tax policy targeting specific groups is discriminatory, transferring money from taxpayers on the losing side to their counterparts on the winning side.

It is also shortsighted because it can upset the balance between supply and demand. A government-granted tax credit could encourage car dealers to overstock hybrid cars even if most Arizona consumers really want trucks. Government preferences shouldn't supplant consumer demand.

Fundamentally, government policy should be neutral toward all citizens. In a country where all people are equal under the law, government should not be in the business of choosing favored classes or preferred behaviors and rewarding a few with lower taxes.

Targeted tax cuts may be good politics, but they are poor policy. The government isn't a fairy godmother and shouldn't function like one, bestowing gifts upon her favorite children.

Fairness demands tax reduction for all Arizonans, no matter who they are, what they drive or how many employees they have.

Noah Clarke is an economist with the Goldwater Institute.

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