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Government attempts to second-guess the market are bad policy

November 5, 2014

Let’s say you want to start a business. You scrape together some start-up capital. And let’s say you are able to eventually hire 15 people and are able to pay them above the median wage in your community.

Now let’s say a company moves in across the street and hires 15 workers on the same terms. The main difference is that they have more money to invest in their company right away than you did. There’s another big difference, too. They will get the benefit of a big tax cut that you won’t get.

If a bill working its way through the state legislature (SB 1041) is passed, that business across the street could be granted a property tax rate of 5 percent while you are stuck with the usual commercial property tax rate of 20 percent.

This is more than unfair. While evidence shows that tax cuts do indeed encourage job growth, it’s not clear that cherry-picking businesses to receive a tax cut while leaving all the rest of the businesses in a state with the higher tax rate is an effective long-term economic development strategy.

Low taxes for all businesses are a far better tool for encouraging job creation. When government substitutes its judgments for those of the market by directing capital through favorable tax treatment to politically-favored projects, investments that the market would have otherwise made don’t see the light of day. That could actually lead to a relatively less healthy economy overall.

Simply put, a vote for SB 1041 is a good indicator that your legislator thinks that the government knows better than seasoned investors whether the company across the street is a better investment than yours.

Stephen Slivinski is senior economist at the Goldwater Institute.

Learn More:

Goldwater Institute: Property Tax Exemptions Shift Burdens to Neighbors

Arizona Legislature: SB1041 summary (“strike everything” amendment)



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