The Arizona Senate is recommending $7 million in business tax cuts this year, with many senators saying the state cannot afford more. That represents 0.06 percent of the Senates $10.6 billion budget proposal. By contrast, the Arizona House was able to come up with $46 million in recommended business tax cuts. To paraphrase occasional presidential candidate and magazine publisher Steve Forbes, maybe its the politicians we cant afford.
Many believe Arizona is an inexpensive place to do business. That is a myth. Ernst & Young publishes an annual report that totals up all the state and local taxes paid by business in each state. Arizona's percentage is higher than our regional competitors and states with similar populations. Businesses supply Arizona governments with nearly half their revenue.
According to Ernst & Young, A states competitiveness depends on the level of business taxes compared to the level of economic activity that is being taxed. The Effective Tax Rate, the ratio of business taxes to private-sector gross state product, shows the percentage of financial resources being taken from the private sector to pay for government. Arizona does worse than the national average, and much worse than Utah, Colorado, and even Massachusetts.
Businesses create jobs and wealth. The Senate should not be concerned about whether it can afford to cut taxes on business, but whether it can afford not to.
Noah Clarke is an economist with the Goldwater Institute.