Tax Reform

Americans are a hard-working bunch and should keep what they earn. Our ideas for tax reform reduce the burden of taxes while ensuring governments have the resources to focus on core responsibilities.

<p>Americans are a hard-working bunch and should keep what they earn. Our ideas for tax reform reduce the burden of taxes while ensuring governments have the resources to focus on core responsibilities. </p>

The House Natural Resources and Rural Affairs Committee recently modified Senate Bill 1154 with a “strike-everything” amendment that seeks to increase the state’s gasoline tax. Some years ago, a "temporary" tax of 1 cent per gallon was passed to help clean up leaky underground gasoline storage tanks. That tax is scheduled to end in 2013. SB 1154, as amended, would extend this tax for another five years.

Proposition 100 supporters are touting estimates from economists at the University of Arizona and Arizona State University. They claim an 18 percent increase in the state’s sales tax would cost fewer jobs than the number of jobs that otherwise may be lost due to reductions in the government spending.

State finances will be in worse shape in 2014 if the proposed 18 percent increase in the state sales tax passes on May 18, according to long-term projections by the Joint Legislative Budget Committee. With Proposition 100’s passage, the deficit in 2014 would be almost $1 billion. Without Prop. 100’s tax increase, the projected 2014 deficit would be $200 million.

Suppose the state of Arizona gave taxpayer money directly to companies in certain industries as an incentive to locate here, with payments based on how much workers were paid and whether health benefits were offered.

Tax revenues would have to be raised or diverted to pay for this program. Government bureaucracy would be created to make sure businesses comply with the program’s requirements. Consequently, the economy would be partially transformed according to the preferences of government officials.

Arizona’s policymakers will face a huge challenge after today’s election results are tallied. The state’s structural budget deficit, or the amount that yearly spending exceeds yearly revenues, is in the neighborhood of $1.8 billion. That’s $720 a piece for the typical Arizona household. We’ve already seen record tax increases, mortgaged assets and every possible accounting gimmick to keep the state out of bankruptcy. But still, we’re deeply in the red.

I recently suggested the state should abolish its income tax. So what should replace the $2.2 billion in income tax revenues that the state receives each year? The answer requires a clear understanding of the role of income taxes in our economy.

The central issue in taxation is to do the least harm while bringing in enough money to fund core government programs. Income taxes are essentially a tax on what people produce in either goods or services. Businesses and individuals are discouraged from producing more and hiring more employees to avoid paying more income taxes.

I recently proposed that Arizona abolish its income taxes and replace them with sales taxes that reach more goods and services. I received many emails from people concerned about how this change would affect families with lower incomes.

When it comes to economic policy, policymakers are increasingly looking to the two largest states in the nation as guides for what to do and what not to do. California and Texas represent nearly opposite visions for how to achieve prosperity.

Even though California is in an economic death spiral elected officials are looking for ways to tax carbon emissions, increase regulation, and they have basically refused to cut government spending. Meanwhile, Texas, with its welcoming business environment of no income tax and lighter regulation, is booming.

There are a number of excellent tax cuts in Governor Jan Brewer’s jobs bill that’s the focus of this week’s special legislative session. The corporate tax rate cut to 4.9 percent from roughly 7 percent gets us closer to being competitive with other states such as Colorado. The property tax cut finally reduces a heavy tax load that has been carried by businesses for too long.

But the bill also includes a “deal closing” fund, which uses grants of taxpayer money as an enticement to companies to relocate to Arizona. There are also tax credits for job creation.

It’s often said sequels are never as good as the original film. The same can be said of the recently-proposed multi-media tax credit (SB 1159) that is meant to replace the expired filmmaker tax credit. This sequel is a bad idea. And, in this case, the original was pretty terrible, too.

The tax credit is defended as a way to lure filmmakers to shoot their production in Arizona. Yet there’s no need to skip to the end of the screenplay to see how it ends: it’s a classic tale of corporate welfare.