Goldwater Institute

Entrepreneurs are a hardy bunch. They may start their own businesses for a variety of reasons, weathering any number of adverse conditions to make it work. One thing they have in common is a willingness to take risks. Lots of people have good ideas, but how exactly do we encourage people to turn those ideas into businesses? One way is to cut taxes.

According to a recent study, "a reduction in the marginal tax rate on entrepreneurial income of one percentage point would increase probability of entry into entrepreneurial activity by 1.42 percentage points for single filers and 2.0 percentage points for married filers." Perhaps more interesting however, are what tax burdens do to active entrepreneurs. "A marginal tax rate reduction of one percentage point on entrepreneurial income reduces the probability of exiting entrepreneurial activity by 17.32 percentage points for single filers and by 7.81 percentage points for married filers."

The study, Taxes and Entrepreneurial Activity: An Empirical Investigation Using Longitudinal Tax Return Data, released by the U.S. Small Business Administration's Office of Advocacy, examines the relationship between marginal tax rates and individuals' decisions to start their own businesses and. It shows that even minor increases in tax burdens can suppress a significant amount of entrepreneurial activity.

Entrepreneurship is an inherently risky endeavor, and people willing to go into business for themselves discover a variety of innovative ways to both mitigate those risks and accept them. As we all know, however, taxes are an unavoidable dampener on the incentive to engage in self-employed activity even the best new product will be disincentivized by taxes. So it behooves policymakers to consider all the would-be start-ups they are forgoing when they increase tax burdens. Moreover, they should consider the liberating effect of decreasing tax burdens, unleashing latent entrepreneurial talent.

That a person can have a great idea, the ingenuity to turn it into a business idea, and the drive to put in the hard work to get it done, only to be foiled by the marginal tax rate, it's enough to "make a grown man cry."

With over $500,000 in campaign money and the backing of many of Mesa's leading officials and developers, one would think that the City of Mesa's effort to develop Riverview at Dobson would be a foregone conclusion.

But not so fast!

The plucky Valley Business Owners and Concerned Citizens Inc., a group that in the past has used shoestring budgets to help defeat Mesa's city food tax, is on the watch.

The VBO objects to the $80 million in "incentives" that Mesa is offering to developers and businesses who relocate to Reverview. And for good reason.

As the Arizona Republic's Laurie Roberts reported,  "this deal was done in secret. In fact, secrecy is standard operating procedure for any city preparing to give away copious amounts of the public's cash to developers. In this case, the Mesa City Council held at least nine private meetings to hash out the deal. One council member said the sessions were so secret she couldn't even take papers out of the room. So secret, in fact, that the attorney general is investigating."

The Goldwater Institute has long championed fundamental corporate tax reform that lowers the tax rates on all businesses. Such reforms help create economic prosperity.

But targeted tax breaks and incentives aimed at attracting specific businesses to specific locations end up being little more than corporate welfare. With any luck, the VBO will once again succeed in its efforts to protect Mesa's citizens from unwise development policy.

An Arizona Republic editorial this week was highly critical of legislative proposals concerning the method by which state appellate court judges and in Pima and Maricopa county judges are appointed and retained.  The editorial argues that no changes are necessary because the system "ain't broke."

The editorial fails to recognize that the struggle to maintain an independent judiciary that is accountable to the people existed before Arizona was even a state.  President Taft vetoed Arizona's original bid to join the union in 1911 because the state constitution provided for the recall of judges.  The provision was removed, but inserted back into the constitution after Arizona was granted statehood.  It's still part of our constitution today. 

The Arizona Constitution also contains sections enacted in 1974 and 1992 that were further attempts to maintain the balance between independence and accountability.  One way the system is supposed to do this is through retention elections.  However, as an upcoming Goldwater Institute report card on the judiciary points out, no judge in Maricopa or Pima counties has been ousted in the past 26 years. Even judges facing criminal charges have been kept on the bench.  Voters retained every Arizona Supreme Court justice since the creation of the merit selection system in 1974.  The margins by which they've been retained have remained fairly consistent as well.  For example, Supreme Court justices received an average of 75.8 percent in favor of their individual retention from 1992 through 2004.  During that same period, no justice received less than 69.5 percent in favor of his or her retention.

The system is supposed to work by providing voters with information on whether each judge should be retained.  But even Justice Jones recently acknowledged that voters may not be receiving enough information.  The upcoming Goldwater Institute report card will be released in conjunction with the Goldwater Institute State of the Judiciary Conference on April 8, 2005.  The report card and conference are designed to provide information to the public and policymakers to ensure the system for the selection of judges works the way it should. 

Last year, the Goldwater Institute reviewed decades of empirical evidence, which showed the bigger the district, the bigger the bloat. Moreover, Arizona's best smaller districts averaging around 300 students, along with the best medium-size districts, averaging around 2,400 students, consistently spent as little or less than the state's largest districts, averaging over 34,000 students.

Bigger districts are also unlikely to yield the hoped-for savings. Even if the most expensive types of administrative costs could be contained, and every dollar actually trickled into the classroom, the savings would likely  amount to around $17 per-pupil. Worst of all, a growing body of evidence spanning twenty years shows making school districts bigger hurts student achievement.

Consolidation is a marginal reform, best implemented on a case by case basis. However, promoting a competitive educational marketplace has a proven track-record of success. By fully exercising public school open enrollment, school efficiency could rise by 10 percent; student achievement could be roughly 3 to 6 percentile points higher; and spending could be almost eight percent lower.  The competition from expanding Arizona's charter schools could improve test scores of charter students and students attending nearby traditional public schools by 1 to 3 percentile points. So if we're serious about student achievement and savings, we should make districts leaner through competition, not bigger through consolidation.
"Competition or Consolidation? The School District Consolidation Debate Revisited," Vicki Murray and Ross Groen, Goldwater Institute Policy Report #189, January 12, 2004.