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>

There are 21 states with lower corporate income tax rates than Arizona. Before you stop and say "but corporations should pay their fair share too" realize that corporations are only a middleman for Uncle Sam. Corporate taxes are paid by private individuals in the form of higher prices, lower returns on investments, and fewer jobs or less pay. Corporate taxes make Arizonans poorer and the state less competitive to attract new business investments and create new jobs.

It's easy to be confused when it comes to the state budget and the competing plans for closing next year's deficit.

On the one hand, Governor Brewer says there is a $4 billion deficit going into 2010. On the other hand, the Legislature says it's a $3 billion deficit. The Legislature's plan claims to trim the budget by $630 million, while the Governor claims $930 million in reductions. Yet, it's consistently reported in the news that the Legislature is cutting more than the Governor.

Every Presidential election year, candidates roll out tax plans aimed at wooing voters. This year, one of the debates is whether the Bush tax cuts should be made permanent.

The 2003 tax cuts simplified income tax brackets and slightly lowered rates. Consequently, the income taxes penalty on work, investment, and innovation was reduced. Eliminating these cuts would be poor economic policy, poor tax policy, and poor social policy.

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."

Whether personal, organizational, or governmental, when dealing with finances, it's often a good idea to back up and look at the big picture. Accordingly, the figure below shows Arizona's General Fund expenditures and revenues from 1993 through 2008 (the latest year available).

Governor Jan Brewer was right to veto the legislature’s attempt to carve out special tax privileges for certain businesses.
 
In her veto message, the governor cited many of the reasons the Goldwater Institute suggested for opposing the legislation. The bill had “potential to favor new businesses over those who have weathered the economic storms with us,” she wrote, and would require new bureaucracy to verify company eligibility.
 

Arizona’s teachers union has a fixation on school funding. And if the union’s proposed ballot initiative to permanently raise the sales tax in Arizona is any indication, they have also developed tunnel vision. The teachers union and other education associations want the “temporary” one cent sales tax increase that passed two years ago to become permanent.

When policymakers say they have enacted “historic” legislation, they are usually accused of hyperbole. And, in many cases, that is a fair criticism. But in the case of Governor Brewer’s signing of HB 2815, it isn’t a big stretch to say that the action did make one historic move in regard to tax policy. It made Arizona the ninth state in the U.S. to effectively cut its capital gains tax. When the tax cut is phased in completely by 2016, the effective tax rate on capital gains will be 3.4%, instead of the current rate of 4.54%.

Recently, the Arizona Education Network (AEN) opined in the Arizona Republic, “Once in a great while, Arizona citizens have the opportunity to do something truly transformational for the trajectory of our state.”

Blogger Mike McClellan criticizes the Goldwater Institute and me specifically for our estimate that the 1-cent sales tax rate increase would cost Arizonans 14,000 to 20,000 jobs. He cites the increase in the number of jobs in the state over the last two years and recent predictions that job growth will pick up as evidence of how wrong we were. There’s just one problem with McClellan’s thesis; it has no basis.

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