Federal stimulus money makes state budget deficit worse


By Tom Patterson
Goldwater Institute
 
State Rep. Kyrsten Sinema recently rebuked U.S. Sen. Jon Kyl in the pages of the East Valley Tribune for recommending that “stimulus” funding be terminated. The federal government, by spending $308 million on infrastructure in Arizona, is providing a “much needed economic boost” to the state, she claimed.

Nobody can say for certain what might have happened without this $767 billion handout. But economic downturns always work themselves out. Markets are inherently self-correcting. In fact, there is a strong possibility that the massive bailouts and market manipulations by the U.S. Treasury and Federal Reserve have lengthened and deepened our current recession.

But there’s another, more fundamental problem with the “stimulus” program. It isn’t paid for with real money. The federal government is simply sharing the use of its magic printing press with the states for a while.

Printing trillions of dollars to pay for today’s wishes is wretched economic policy. When the stimulus money runs out, states will be in worse shape than ever because of the program expansions required to obtain the stimulus funds. Sooner rather than later, states will be forced to face the bitter reality of a “near permanent reduction in state revenues that will force us to reduce the size and scope of our state governments,” according to Gov. Mitch Daniels of Indiana, writing in the Wall Street Journal.

Like many individual Americans, many states spent extravagantly in the good economic times of this decade, making no provision for the future. Arizona unfortunately was one of the worst offenders. Now, that future is here. States are banking on an economic rebound, but gross domestic product growth would have to average 7 percent, twice the historic average, for revenues to be restored to their previous level by 2012.

In response to declining tax revenues, more than half the states have raised taxes. But today’s mobile individuals and businesses simply flee states that try to sock it to them. Beneficiary states are like Indiana, where state spending has been severely reduced and the tax climate is business-friendly. This year alone, more than 30 businesses have moved from tax-and-spend states to Indiana.

Yet Arizona Gov. Jan Brewer still insists on protecting state spending as much as possible by raising taxes. But she’s just postponing the day of reckoning. There is no choice but to fundamentally reduce the scope of state government or face permanent economic decline. Daniels notes that “wishing for an improbably huge boom while chasing your own tail through self-destructive taxes won’t prove much of a strategy.” Is anybody listening?
 
Tom Patterson is chairman of the Goldwater Institute and a former state senator. A longer version of this article originally appeared in the East Valley Tribune.


Comments

  1. A whole 30 businesses from the tax and spend states which this article says is most of the country… A whole 30!! Wow if that’s the best numbers you can find you should have just left it out.

  2. The unalterable fact that there is always a price to be paid is a concept that far too many people don’t understand.

    I would love to know what advocates of the government borrow and spend stimulus think when they read Mr. Patterson’s article.

    Government cannot borrow money, print money and then spend money to make the economy prosperous.

  3. Thane,

    I agree with you I just do not think the citing of 30 businesses with saying the size and basically saying nationwide only 30 have moved helps the argument…

  4. I meant to say without say the size of the businesses… It just makes the argument look weak…

  5. Uh. California is losing population and businesses by the thousands, people who end up in Colorado, Arizona … and evidently low tax Oklahoma has become a hot location.
    It was easy to predict this a few years ago when California couldn’t keep the lights on. Businesses either install expensive back-up generators or they go to states which know how to manage power grids.
    Arizona is in a good position – but has to exploit that position wisely – low taxes, sensible governance and more people spending more money will come. But Dumping gazillions into extravagant luxuries like a flashy, but collossally inefficient Phoenix light rail isn’t what state revenues were meant for.

  6. Still acting beyond stupid says:

    there was not much state money in light fail.

    On the other hand, there is no state money left.

    I can hardly wait until the goldwater folks are unemployed.

    they need to go back to dc and the cato institute where they belong, and stop carpetbagging here.

  7. We have been hearing for 20 years that we can lure businesses from CA here by lowering taxes, yet, each time this has been done it has seemed to have no impact at all in this area. When will people realize that cutting taxes and then sitting back and waiting for good paying jobs to come flooding in is a ridiculous strategy.

  8. Antifederalist says:

    Todd,
    Once again you are BLATANTLY wrong. The State had to grant special tax privileges (aka lower taxes) to Intel to get them to put one of their plants in Arizona. When Intel was later asked what would happen if their special privileges were revoked, an Intel executive said that Intel is running on such tight margins that the plant would have to relocate within a week.

    We are FOURTH highest in the nation in our corporate personal property tax. That means businesses are taxed on their equipment over and over again. Yeah, THAT makes sense! It creates distortions in Arizona’s economy. It discourages equipment-heavy industries from locating in Arizona. THAT’s why Arizona is laden with low-equipment businesses: businesses that use mainly desks, chairs, desktops, etc. like call centers. This corporate property tax is quite literally strangling Arizona’s economy, does economic violence to job seekers, and reduces opportunity.

    Lower taxes DO matter in convincing business to come to Arizona. Those lower taxes result in more jobs and greater wealth creation in the state. What? you think HIGHER taxes incentivise businesses to come to Arizona? Yeah, as a CEO, I want to relocate where the government confiscates MORE of the company’s wealth rather than less! Oh, and let me relocate to where regulation imposes high costs on business too!

    You’re SUCH a `tard. Give it up. Your posts have exactly ZERO value. Go post on some lefty site where all the other lemmings will think you’re brilliant, somewhere where the idiots believe you can tax your way to prosperity and that more government is the answer to everything.

  9. Antifederalist,
    Looking at one tax rate does not tell you the tax climate in a state. The Tax Foundation ranks AZ at 28th in overall business taxes. However, they look at tax rates not what is the effective rate which is what a business should actually care about because this tells them what they are likely to pay. When understood in that way, as Ernst & Young do in there annual reports on state tax climates, it is clear that the actual costs to businesses of the property tax is in the middle of all states. AZ is also much better than average in corporate income, unemployment insurance and general licenses and fees.

    The property tax is high for some industries so maybe it would make sense to raise taxes in other areas and lower adjust the property tax on those types of companies.

    What I don’t see you challenging is my point that taxes have been reduced significantly over the past 30 years and the promised pay-off has not come.

    PS. I am just curious, in real life are there people that actually like you or are you pretty much a pariah because of your belligerence?

  10. “The property tax is high for some industries so maybe it would make sense to raise taxes in other areas and lower adjust the property tax on those types of companies.

    What I don’t see you challenging is my point that taxes have been reduced significantly over the past 30 years and the promised pay-off has not come”
    …………………
    You just contradicted yourself.

  11. wanumba,
    How?

  12. Taxes are still too high for key industries.
    But taxes were reduced, but key industries haven’t come in.
    Which means …

  13. wanuba – a CERTAIN tax is high but the overall tax climate for business is low and has been continuously lowered in the past decades.

  14. “a CERTAIN tax is high but the overall tax climate for business is low and has been continuously lowered in the past decades.”
    …………….
    So those CERTAIN high-taxed sectors are avoiding Arizona like the plague.

  15. wanumba – One more time. Arizona has a business friendly, low corporate tax climate. One tax is higher than average, the rest are much lower. The original discussion was disputing my claim that the state has consistently been lowering taxes over the past decades with claims it would attract business, especially from California. This has not happened. Based on this track record it is obvious that this strategy has been unsuccessful.

  16. Name that tax!
    It doesn’t hurt also to ASK companies WHY they aren’t coming. We’ve noticed that APS electric is pretty high compared to other states – a hidden TAX, raising overhead to unacceptable levels.
    Bet none will say, “Well, Phoenix didn’t have a light rail … so …”

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