No later than June 30, Arizona's legislature and Governor Brewer have to agree on a budget for fiscal 2010 or the state government will shut down.
There's really only one question to settle: Will the state's budget be balanced with a tax increase or not? I've written about the relatively immediate economic effects of a tax increase. We can see longer-term hints of what might happen if we look at the latest Rich States, Poor States publication from the American Legislative Exchange Council.
The evidence presented in Rich States, Poor States clearly shows that higher taxes leads to relative economic stagnation. Arizona has seen this anecdotally with our neighbors California and New Mexico. When these relatively high-tax states have suffered high unemployment, net domestic out-migration, and less income growth, Arizona has enjoyed good economic times.
Arizona is currently highly rated, third in the nation, for future economic outlook. Our ranking partly comes from having a relatively low tax burden. But we live in a competitive neighborhood. Utah is rated number one. Colorado is second. Texas is tenth.
The state's fiscal woes should not serve as an excuse to raise taxes and hurt our prospects for a strong economic recovery. If we falter now, other states will be happy to snap up the business we lose.
Byron Schlomach, Ph.D, is director of economic policy at the Goldwater Institute.
Goldwater Institute: State on the verge of committing economic suicide
American Legislative Exchange Council: Rich States, Poor States