If it's appropriate during this economic downturn for Governor Brewer to talk about taxes, it seems especially appropriate to talk about creating a tax system that encourages economic growth. This is the focus of a recent study released by the Goldwater Institute titled "How to Restructure Arizona's Tax Code: A Smarter, Flatter Tax Plan to Create Jobs."
Coauthored by economist Arthur Laffer, President Reagan's economic advisor, the study points out that Arizona's tax system is not economic growth friendly. Compared to neighboring states, Arizona's corporate income tax rate is exceeded only by California and New Mexico. On some commercial properties, Arizona's property taxes exceed even those of Texas, a high property tax state. When state and local sales taxes are combined, Arizona's sales taxes are among the highest in the nation and are the highest in our region.
The three economists who authored the Goldwater study argue for a flatter, broader state tax system characterized by low rates. They would scrap the state's tax system, including the personal and corporate income tax, the tax on capital gains, a host of small taxes and fees, and the state sales tax. In its place would be a flat income tax of 3.34 percent with few deductions, and a business value added tax at the same 3.34 percent rate. Revenues to government would initially remain the same.
By removing the growth-discouraging aspects of our current tax system, Arizona could see its economic recovery period create 112,000 more jobs than otherwise in less than ten years. Combined with real fiscal restraint, a growth-oriented tax system would make Arizona master of its own economic fate, rather than being buffeted by the pandemonium of California.
Byron Schlomach, Ph.D, is director of economic policy at the Goldwater Institute.
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