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Eliminating state capital gains tax could spark an entrepreneurial surge

January 19, 2012 By 1 Comment

By Stephen Slivinski

An important driver of job growth is investment. Without investment, new businesses may not flourish or even see the light of day. And venture capital investment in technology start-ups is one of the highest-profile sources of new business births.

Tax policy can either obstruct the new capital that businesses need or it can step out of the way and allow thousands of flowers to bloom. A number of studies have shown that taxes on capital gains – the return an entrepreneur or investor receives on their investment – have been shown to be a barrier to entrepreneurship and the job growth it creates.

Capital flows where it can find high returns and low barriers to allocation, and businesses in states with lower capital gains taxes receive more investment than their higher-tax counterparts. A 1998 study by Harvard University professors Paul Gompers and Josh Lerner concluded that entrepreneurial activity is sensitive to the taxation of capital gains. In particular, the authors found that a reduction in capital gains taxes is associated with an increase in venture capital funding in a state.

A 2010 study by William Gentry of Williams College came to the same conclusion. His paper noted that “capital gains taxes could distort a number of important decisions of entrepreneurs. These decisions include starting a new business, expanding the business, and obtaining outside financing; the capital gains tax can also affect whether and when an entrepreneur sells his or her business.”

Arizona, like most states with an income tax, treats capital gains as “normal” income and taxes it at the same rate as all other income. But nine states, including New Mexico, tax investment at a lower rate than their standard income tax.

In the material released after the State of the State speech, Governor Brewer indicated she understands that Arizona needs to lower its tax barriers to capital investment – an important step. But the governor and legislature should go further and eliminate the tax on capital gains altogether.

Arizona can be the first state with an income tax to do that and could, as a consequence, end up being a hub for new venture capital activity.

Stephen Slivinski is a Senior Economist with the Goldwater Institute.

Learn more:

American Council for Capital Formation: Capital Gains Taxation and Entrepreneurship

Harvard University: What Drives Venture Capital Fundraising? (PDF)

American Action Forum: Employment Effects of Reducing Capital Gains Tax Rates in Ohio

Filed Under: Arizona Politics, Economic Development, Economics, Jobs/Labor, State Budget, State Economy, State Government, Taxation

For Cities, a 20-Year Roadmap to Prosperity and Freedom

January 17, 2012 By 1 Comment

By Nick Dranias

At least one Arizona city understands that the key to economic growth is more freedom and lower costs levied on businesses.

The City of El Mirage recently announced that it was abandoning “impact fees” – regulatory hurdles that hold a developer’s property rights hostage. The fees are supposed to cover the cost of the impact that new development has on city infrastructure. But in reality, they’re a surtax on economic growth that is often used to fund unnecessary luxuries like public art and theatres.

El Mirage has set a great example, but one isolated reform won’t prevent El Mirage or any other city in the U.S. from slipping back into bad habits once the good times return. Local governments still need a long-term plan for embracing freedom and prosperity-friendly policies in good times and bad.

Fortunately, a new bill sponsored by Senator Lori Klein promises to fulfill that need in Arizona.

Based on the Goldwater Institute’s research in A New Charter for America’s Cities, Senator Klein is sponsoring SB1064, which would give cities the power to adopt a “Local Liberty Charter.” Any city adopting the charter would embrace a 20-year plan for economic growth based on individual freedom and responsibility, including a prohibition on subsidies to private businesses, an end to excessive regulations, competitive contracting of services other than public safety, and the limitation of local spending to population and inflation growth.

Even if only a handful of cities adopted the charters, the contrast between them and others would eventually produce a stark difference in prosperity. Moreover, the inevitable success of what Senator Barry Goldwater called “freedom’s model” would be a crucial force in persuading cities to choose freedom.

Learn more:

Arizona Republic: “El Mirage showing that it’s ‘pro-growth’”

Arizona State Senate: Senate Bill 1064

Goldwater Institute: A New Charter for American Cities

Filed Under: Arizona Politics, City Government, Economic Development, Economics, Property Rights

Arizona House Speaker Promotes Economic Development

January 12, 2012 By Leave a Comment

FOR IMMEDIATE RELEASE: January 12, 2012
CONTACT: Rey Torres

Commends Governor Brewer’s Tax Proposal

STATE CAPITOL, PHOENIX (January 12, 2012) – Speaker Andy Tobin today commended Governor Jan Brewer on her announcement of a series of tax reforms designed to spur economic growth. “I am very supportive of the Governor’s tax reform proposals,” said Speaker Tobin. “The fiscal health of our economy remains the number one issue facing our state.” Speaker Tobin further iterated the importance of promoting capital investment and workforce development as well as reducing the administrative and regulatory burdens placed on businesses.

Last year, House Republicans spearheaded Arizona’s Jobs Bill, which laid down the foundation for the state’s economic recovery, and which Governor Brewer signed into law. This year, Speaker Tobin is advocating for additional tax cuts as well as regulatory reforms to cement Arizona’s status as a place businesses want to set up shop.

In addition to the Governor’s tax reforms, Speaker Tobin is proposing a regulatory tax credit. This plan will provide a dollar for dollar tax credit equal to the cost of excessive government regulations. “The cornerstone of job creation is lowering the cost of doing business in our state,” said Speaker Tobin. “This tax credit will supplement the Governor’s other tax reforms to help encourage business expansion as well as new businesses locating across the state.”

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Filed Under: Economic Development, Elected Officials, Press Release, Spending, State Budget, State Economy, State Government, Taxation Tagged With:

Ending the Solar Subsidy Fiasco

January 12, 2012 By Leave a Comment

By Clint Bolick, Goldwater Institute

It’s not every day that the New York Times makes a compelling case against government giveaways. But a recent page-one article underscored that the Solyndra scandal was only the tip of the solar-subsidy iceberg. Huge companies like Goldman Sachs, Morgan Stanley, General Electric, utilities including Exelon and NRG, and even Google are receiving government guarantees that ensure large profits with virtually no risk — except to the taxpayer.

The Times ascribes to the Obama administration a “gold-rush mentality” when Congress expanded green-power incentives in 2009, despite a paralyzing federal deficit. The chief executive of NRG, which received $5.2 billion in federal loan guarantees plus hundreds of millions in other subsidies for solar projects, gushed that “I have never seen anything . . . in my 20 years in the power industry that involved less risk than these projects.”

A start-up industry with no capital risk to investors? It’s a nifty deal if you can get it—and many have. “It is like building a hotel, where you know in advance you are going to have 100 percent room occupancy for 25 years,” the Times quotes the CEO of SolarReserve. Even some of President Obama’s top advisors have warned of industry “double-dipping.”

Solar may be the most-subsidized industry in American history. Not only are producers subsidized at the federal, state, and sometimes even local levels, but consumers are subsidized to purchase solar panels, utility companies are forced to use and further subsidize solar power, and higher utility rates are passed along to Americans amidst deep recession.

Arizona is immersed in solar subsidies, providing tax breaks and (through the Corporation Commission) mandating that 15 percent of all utility energy be provided through specified renewable sources. Cost and technological feasibility are no object, and every dollar in added costs is passed along to consumers through a utility surcharge.

If the New York Times gets it, shouldn’t sensible, self-styled conservative elected officials? It’s time for government to stop playing Santa Claus to this pampered industry.

Clint Bolick is director of the Goldwater Institute’s Scharf-Norton Center for Constitutional Litigation.

Learn more:

New York Times: A Gold Rush of Subsidies in Clean Energy Search

Filed Under: Arizona Politics, Economic Development, Economics, Energy, Environment, Spending, State Budget, State Economy, State Government

It’s time to square up the state’s debt

January 10, 2012 By 3 Comments

By Nick Dranias, Goldwater Institute

Governor Jan Brewer has declared that one of her priorities in the coming session is to pay down the state’s debt. The idea, mirrored by leadership proposals in the state house and senate, is both timely and refreshingly frank.

By any straight-face test, the state has continuously violated the Arizona Constitution’s mandate that current-year expenses be funded largely on a “pay as you go” cash basis — not through debt. Now that the state anticipates as much as $650 million in surplus tax revenue, it is time to square Arizona’s fiscal policy with the state constitution.

Enabled by legal precedents that embraced fiscal gamesmanship decades ago, the state has long skirted the Arizona Constitution’s $350,000 debt limit using a variety of budget tricks. Officials have sold and leased-back buildings, used credit lines and warrants to cover huge gaps between spending and revenue, and rolled-over liabilities from one budget year into the next.

While last year’s budget was relatively gimmick-free, hundreds of millions of dollars of past fiscal gimmickry remain on the books.

An unretired debt is a tax on future generations. Our state’s founders largely banned debt to protect those voiceless future generations from taxation without representation.

Arizona’s “pay-as-you-go” constitutional policy properly imposes political accountability on current politicians for their fiscal choices. For this reason, constitutionalists, tax hawks and fiscal responsibility mavens should agree with Governor Brewer and legislative leadership: Use the surplus to retire the state’s unconstitutional debt.

Nick Dranias holds the Clarence J. and Katherine P. Duncan Chair for Constitutional Government and is director of the Joseph and Dorothy Donnelly Moller Center for Constitutional Government at the Goldwater Institute.

Learn more:

Arizona Republic: Plans for Arizona Budget Vary

Goldwater Institute: Living Debt Free: Restoring Arizona’s Commitment to its Constitutional Debt Limit

Filed Under: Arizona Politics, Debt, Economic Development, Economics, Government, Legislation, Spending, State Budget, State Economy, State Government

Congressman Flake Criticizes Obama Administration Decision to Ban New Uranium Mining Claims in Northern Arizona

January 9, 2012 By 1 Comment

FOR IMMEDIATE RELEASE: January 9, 2012

Mining Can Stimulate Economy without Jeopardizing Natural Beauty of the Grand Canyon

Mesa, Arizona – Republican Congressman Jeff Flake, who represents Arizona’s Sixth District, today condemned the Obama Administration’s decision to implement a 20-year ban on new mining claims on 1 million acres of federal land outside of Grand Canyon National park in an area known as the Arizona Strip.

In 2009, Department of the Interior Secretary Ken Salazar halted new mining claims for two years. In extending the ban on new claims for another six months in July of 2011, the Secretary announced that the preferred alternative is to implement a 20-year withdrawal.

“Uranium mining in northern Arizona occurs well outside Grand Canyon National Park and poses no threat to the Grand Canyon or the tourism industry in northern Arizona. This withdrawal is simply another example of the Obama Administration’s overreach that will stymie local economic growth and local job creation,” said Flake. “The Grand Canyon is a treasure, so if I believed that uranium mining in parts of northern Arizona posed a threat to the Canyon, I would not support it.”

Congressman Flake has worked to prevent this withdrawal from being put in place. In July of 2011, he added language to the House Interior Appropriations bill that prevents the Interior Department from moving ahead with a withdrawal plan. Congressman Flake’s language wasn’t included in a final FY2012 spending bill. In October of 2011, along with Congressman Trent Franks (AZ-02), Congressman Flake introduced in the House the Northern Arizona Mining Continuity Act, which would prohibit the Department of the Interior from implementing the withdrawal. Senators John McCain (R,-AZ) and Jon Kyl (R-AZ) introduced the legislation in the Senate.

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Filed Under: Economic Development, Elected Officials, Environment, Federal Government, Jobs/Labor, Legislation, Press Release Tagged With: ,

No surprise: Jobs and money go where taxes are low, and Arizona can do better

January 4, 2012 By 2 Comments

by Stephen Slivinski
Goldwater Institute

Every year, people and their income move between states. They move for a number of reasons, but there’s ample evidence that cost of living and its relationship to tax burdens are a factor.

The Internal Revenue Service publishes data that shows the movement of income and people between the states by tracking federal “adjusted gross income” flows. A database, created by The Tax Foundation in Washington, D.C., lets the public compare states.

Arizona fares reasonably well. The state saw a net influx of about $2.89 billion in income since the start of the recession at the end of 2007 through the end of 2010. Perhaps not surprisingly, the largest chunk – just over 20%, or $688 million – came from people fleeing California. The next two biggest chunks came from the basket-case economies of Illinois ($380 million) and Michigan ($294 million). People clearly see Arizona as a better place to live and work than states with high tax burdens and winnowing job prospects.

But we are losing income to other states as well. The biggest out-migration of income for Arizona in that period ($170 million) went to Texas, a state that, along with Nevada and Colorado, grabbed more income from California than we did. The first two states have no income tax and the third has a flat income tax.

Taxes aren’t the only thing affecting migration. But they are one of the most direct tools state policymakers can use to influence job creation and economic opportunity. Arizona legislators can and should make the state attractive in as many ways as possible to compete with other states that may have more natural advantages than we do. Eliminating the income tax would catapult Arizona ahead of neighboring states that we are competing with for jobs.

Stephen Slivinski is senior economist for the Goldwater Institute.

Learn More:

Goldwater Institute: The Tax Man and the Moving Van: Fiscal Policy and State Policy Shifts

Tax Foundation: State to State Migration Data

Filed Under: Economic Development, Economics, State Economy, State Government, Taxation

Special Poll: Stop Punishing Investment to Spur Job Growth

December 14, 2011 By Leave a Comment


Small-business owners point to a way out of Arizona’s recession

PHOENIX, Ariz., Dec. 14, 2011 – Small-business owners believe Arizona needs further legislative action to spur job creation and overwhelmingly favor lowering the property tax burden on new equipment and machinery to do so, according to a special poll released today by their leading representative association.

“Small business wants job creation to continue to be the highest priority for Gov. Jan Brewer and the Arizona Legislature next session,” said Farrell Quinlan, Arizona state director for the National Federation of Independent Business, America’s largest small-business association. “Lowering the cost for small businesses to create jobs through meaningful property-tax relief and the further lifting of the regulatory burden will help restore Arizona’s economy and put our citizens back to work.”

The NFIB survey found near unanimous support among small business owners with 93 percent agreeing our leaders should keep job creation a high priority. It also found 77 percent of small business owners favor significantly increasing the amount of a business’ equipment and machinery that is exempt from personal property taxation.

The survey based its personal property tax questions on a legislative referral being developed by Senate Majority Leader Andy Biggs (Gilbert) and other lawmakers, including House Ways and Means Committee Chairman Jack Harper (Surprise). The legislation, called the Small Business Job Creation Act, asks voters to increase the Arizona Constitution’s exemption for new equipment and machinery to an amount equal to the annual wages of 50 Arizona workers or approximately $2.3 million from the current $67,000.

The NFIB survey dramatically reveals that lowering the tax burden on a business’ equipment and machinery would lead to a burst of job creation from small businesses. When asked if Sen. Biggs’ proposal becomes law, 46 percent of small business owners said raising the personal property tax exemption would likely lead their businesses to hire new workers while 56 percent said such a move would likely result in more equipment and machinery purchases.

“Clearly Arizona’s economy has yet to recover and that’s born out in continued weak job creation numbers and Arizona’s unemployment rate remaining stuck at 9 percent,” said Quinlan. “Small businesses have historically led our state and nation out of recessions through creating new jobs and investing in the future. Small business’ message to our political leaders is unmistakable, job creation is the top issue and lowering small business’ cost of creating those jobs is a great place to start.”

The poll was conducted September 6 to October 21, 2011 with 496 respondents who are Arizona small business owners. The entire poll can be read by clicking here. Results from NFIB’s fuller, annual survey on other issues will be released in the coming weeks.

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NFIB is the nation’s leading small business association with offices in Washington, D.C., and all 50 state capitals. Founded in 1943 as a nonprofit, nonpartisan organization, NFIB gives small and independent business owners a voice in shaping the public policy issues that affect their business. NFIB’s powerful network of grassroots activists send their views directly to state and federal lawmakers through our unique member-only ballot, thus playing a critical role in supporting America’s free enterprise system. NFIB’s mission is to promote and protect the right of our members to own, operate and grow their businesses. More information is available online at www.NFIB.com/newsroom.

Filed Under: Arizona Politics, Ballot Measures, Economic Development, Economics, Jobs/Labor, Legislation, Polls, Press Release, Small Business, State Economy, Taxation Tagged With: , , , ,

Freedom is the key to jobs

December 13, 2011 By 2 Comments

by Byron Schlomach, Ph.D.
Goldwater Institute

With America’s unemployment rate at or above 9 percent for three years, prior to the rate being pushed down by people leaving the workforce, job creation is on everybody’s mind. Unfortunately, for many policymakers across the country the ideas to turn that rate around – tax breaks for big corporations or outright subsidies to biotechnology, solar power, or other high-tech industries – have been tried, with little to show for them.

Nearly all the proposed fixes that we’ve seen in the last few years can be categorized into one of five myths McKinsey Quarterly laid out regarding job creation: 1) Surely there’s a quick fix, 2) The key to boosting employment quickly is to help small businesses, 3) High-tech jobs will solve the problem, 4) Higher productivity kills jobs, and 5) Increasing exports will revive manufacturing employment.

None of these paths, pursued in isolation, will help the economy in the long run. Job creation involves people taking risks, investing, and working very hard. The key, as Whole Foods CEO John Mackey recently pointed out, is to allow entrepreneurs the freedom to do so – freedom from prescriptive tax policies and subsidies to their competition, inefficient regulation, and burdensome government in general. But, the U.S. is moving in the wrong direction. Once ranked third in the world in economic freedom, we are now tenth, behind Great Britain, Canada, Singapore and Mauritius, among others.

But there are some policymakers who are on the right track. Phoenix city councilman Sal DiCiccio, for example: He is working to reduce the permitting burden by the City of Phoenix, which lowers business start-up costs. He also wants to reduce the cost of government by privatizing some government services and with meaningful pension reform.

Ultimately, tinkering at the edges is no longer enough to be competitive for jobs. The states that will really thrive must be bold and make the decision that they will use freedom as the most important tool in the economic development toolbox. Indeed, “we’re the freest place to do business in the country” could be a powerful job creation mantra.

Dr. Byron Schlomach is the director of the Goldwater Institute’s Center for Economic Prosperity.

Learn More:

McKinsey & Co.: Five myths about how to create jobs

Wall Street Journal: To Increase Jobs, Increase Economic Freedom

Cato Institute: Economic Freedom of the World

Filed Under: Economic Development, Government Reform, Regulations, Small Business

State policymakers can give a gift of certainty next year

December 9, 2011 By Leave a Comment

by Stephen Slivinski
Goldwater Institute

Since 2001, the federal tax code allowed business owners to write off more of the investment they make in their company each year and, today, businesses can write off 100 percent of the capital investments they made this year. But if Congress and the President don’t act, that tax cut will end in January 2012. State policymakers, on the other hand, could offer a little certainty in their state income tax code by allowing businesses to immediately write-off on their taxes the full value of their new capital investments.

To understand why and how they should act, first you need to know what happens when a business owner makes a capital investment in his operation. Let’s say he buys a productivity-enhancing machine — a computer, a copy-machine, or a large widget-making device. When purchased and put into service, the IRS allows only a small portion of that investment to be written off in the first year. Instead of writing off the full cost all at once, the business would have to take a number of smaller deductions each year over the usable life of the machine as it declines, or “depreciates,” in value.

This isn’t particularly helpful for economic growth and productivity. Not allowing businesses to immediately write-off the amount of the purchase forces them to understate the true cost of doing business that first year and pay more in taxes as a consequence. Factor in mild inflation and it could even result in the business never being able to fully deduct the business expense over the long term. This dampens investment today and that dampening effect negatively influences job and wage growth.

A simple change could lock this year’s 100-percent deduction into a state’s tax code forever. Short of eliminating the income tax, this would be a great way to maximize a state government’s ability to create a bit of economic certainty for businesses.

It would also counter most state’s tax bias against investment. Kansas governor Sam Brownback realized this was a problem in his state and one of his big, successful legislative pushes this year was enactment of just such a reform. The Sunflower State is, in fact, the only state with an income tax tied to the federal tax code to have cemented 100 percent expensing in their state, which will give them quite an economic advantage.

This would be an effective way to increase long-term business investment in any state with an income tax.  State policymakers shouldn’t miss this golden opportunity to give the gift of some tax certainty as soon as they can. It truly can be a gift that keeps on giving.

Stephen Slivinski is senior economist for the Goldwater Institute.

Learn More:

Institute for Research on the Economics of Taxation: Administration Advocates Expensing: One Big Plus (Among the Minuses)

University of Kansas Center for Applied Economics: Expensing: A Competitive Leap for Kansas Tax Policy (September 2007)

BKD CPAs and Advisors: New Kansas Laws Include Expensing Provision, Incentive Repeal

Filed Under: Economic Development, Legislation, Small Business, State Economy, State Government, Taxation

Supervisors adopt UN Agenda 21 bankrupt solar and green programs

November 5, 2011 By 17 Comments

A m e r i c a n  P o s t – G a z e t t e

Distributed by C O M M O N  S E N S E , in Arizona

Saturday, November 5, 2011

Solar companies like Solyndra are going bankrupt after billion dollar bailouts by the federal government, and are now under investigation. “Sustainability” has been exposed as a disguised word for the UN program Agenda 21 that seeks to undermine US authority and implement radical environmentalism that will crush our freedom and liberties.  The UN is making agreements at the local level with city councils, county supervisors, and other local boards. Our local communities must put a stop to this.

Yet the Maricopa County Supervisors are not listening and have gone ahead and made agreements with the UN subverting our authority to these agreements, and are actively implementing solar energy even though these companies are under investigation. Is this troubled Tempe-based solar company, one of two largest solar companies in the US, the company the Supervisors have contracted with? Read more from the Arizona Republic article:

Maricopa County pushes going green

3 years after program launch, 103 sustainable measures in effect

by Michelle Ye Hee Lee - Oct. 22, 2011
The Arizona Republic

The buzz word in Maricopa County government is “green.”

Maricopa County adopted its “Green Government” program more than three years ago with the idea that energy and resource conservation is good not only for the environment but also for residents and for the county’s bottom line.

“Everything we do, we’re going to do with an eye to reducing our carbon footprint,” said county Supervisor Don Stapley, who spurred the county’s sustainability initiatives in 2008. “If the county does that, and sets that example, I think the citizens of this county will also embrace and follow that leadership.”

The three-pronged approach to sustainability is a growing national trend, experts say. As budgets tighten, more local governments have adopted sustainability as a money-saving measure.

Maricopa County officials identified 144 sustainability measures that they deemed plausible. Since the program began in June 2008, county officials say, 103 measures have been successfully implemented, 31 have been launched and the remaining 10 have not been started.

“It’s important to know that sustainability . . . really is a three-legged stool. One of those things is economics. If things don’t make sense economically, we’re not going to do them, just because that’s a crucial component of sustainability,” said Jonce Walker, Maricopa County sustainability manager.

The Maricopa County Board of Supervisors this week approved an agreement with Arizona Public Service Co. to install solar panels on the roofs of three county buildings, the latest step in the county’s solar-panel installation process.

Among the projects the county has completed in recent years: installing solar panels on jail buildings to heat the showers and at the county-owned Buckeye Hills Regional Park to power the park complex, including a shooting range.

Adding solar panels

Earlier this year, 228 solar panels mounted atop the county’s White Tank Branch Library and Nature Center generated excess energy. The excess energy was credited to the county’s account, then directed to the APS electrical grid for other customers to use.

The county’s green initiatives run the gamut.

For road projects, the Maricopa County Department of Transportation uses rubberized asphalt recycled from old tires that would have been thrown away in landfills or stored on the ground, posing potential fire threats.Four county buildings have received Leadership in Energy and Environmental Design certification: the downtown justice center, Estrella Mountain Regional Park, the former Santa Fe Freight Depot site that recently reopened as a satellite site for the Assessor’s Office, and the White Tank facility.

The U.S. Green Building Council issues LEED certification to projects that meet certain energy-conservation criteria.

Maricopa County’s green policy is comprehensive, especially because county officials did an inventory to establish an energy-consumption baseline, implemented a wide range of measures and tracks its progress closely, said Don Knapp, spokesman for ICLEI-Local Governments for Sustainability USA, an international association of cities and towns that works toward sustainability, clean energy and climate action.

Knapp said local governments across the country are recognizing that going green increases efficiency in government operations, creates jobs and saves money for taxpayers.

“In these tough economic times, you need to look at initiatives that have multiple benefits,” Knapp said. “It’s really a no-brainer.”

One of the challenges facing Maricopa County officials is changing the culture of employees and residents. The Valley is not known as a hot spot for green activism.

“If sustainability is going to work here, it can work anywhere in the world, I think – at least the country. We’re not a Portland, we’re not a Seattle. We’re not a San Francisco, New York. We have our own very unique challenges,” Walker said.

For example, the Valley since 2006 has experienced rapid growth in population – and, consequently, in waste. Maricopa County has the fourth-largest population among U.S. counties, with 3.8 million residents. That means there is a lot of waste that can be reduced, both within county departments and among residents in the community.

 

 
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Filed Under: County Government, Economic Development, Elected Officials, Energy, Environment, Government, Spending

Private failure, not taxpayer-funded industrial policy, is an important part of economic growth

October 27, 2011 By 3 Comments

by Stephen Slivinski
Goldwater Institute

These days, most states have some sort of government agency responsible for bringing jobs into the state. Most of them, including Arizona’s new Commerce Authority, focus on “target” industries. Whether the focus is the solar industry or another group of companies, the punchline is always the same: a centrally-controlled body – either the agency or the state legislature – should direct taxpayer-financed resources to nurture specific companies for the good of the state’s economic future.

But is this approach – prone as it is to the chasing of fads –the right one? It’s an important question because most companies don’t survive very long. And those that do aren’t the premiere companies forever or even for very long.

In his new book, Adapt: Why Success Always Starts with Failure, Financial Times columnist Tim Harford highlights a study by economic historian Leslie Hannah published in the late 1990s. Hannah looked at the 100 largest companies in the world in 1912 and tracked their lifecycle. He found that by the next decade ten of those companies had vanished. Over half had disappeared in the next 83 years.

There aren’t many on the list of successful companies we would recognize today. In fact, none of the companies in 1912’s top 10 were even in the top 100 by the 1990s.

The cycle continues today. Before the current recession, 10 percent of American companies disappeared every year. But this isn’t a permanent loss to long-term economic growth – those failed ventures are replaced by new and better companies that innovate and create more prosperity.

Instead of transferring taxpayer money to today’s favored industries, policymakers should take the long view, encouraging private-capital investments without government-imposed impediments.

A tax code that doesn’t penalize investment would be a vital first step. Even better: Get rid of the state income tax, creating a boon to entrepreneurship. Short of that, reducing the tax burden on investment success – such as eliminating the capital gains tax for investors – would be essential.

Many private investments may fail, but that’s OK. At least government policy won’t be committed to propping up a handful of connected companies with taxpayer money. Private investment activities – even when they fail – plant the seeds for long-term economic growth.

Stephen Slivinski is senior economist for the Goldwater Institute.

Learn More:

Goldwater Institute: Research shows states don’t stimulate job growth with taxpayer handouts

Arizona Commerce Authority: Public meeting agenda and minutes

Tim Harford: Failure – it’s everywhere

Filed Under: Economic Development, Economics, Government Reform, Small Business, Spending, State Economy

Rep. Quayle Floor Speech in Support of the Southeast Arizona Land Exchange and Conservation Act

October 26, 2011 By 1 Comment

FOR IMMEDIATE RELEASE: October 26, 2011
CONTACT: Richard Cullen

WASHINGTON (DC) Congressman Ben Quayle (R-AZ) delivered remarks on the House Floor Wednesday prior to voting in favor of HR 1904, the Southeast Arizona Land Exchange and Conservation Act of 2011. The legislation, sponsored by Rep. Paul Gosar (R-AZ), creates thousands of Arizona jobs by authorizing a fair value land exchange in Southern Arizona that will open up one of the largest sources of undeveloped copper in the world.

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Highlights from his remarks:

“H.R. 1904 will have broad economic impacts, not only for Arizona but for the country as a whole, because it will create 3,700 jobs equaling nearly 220.5 million dollars in annual wages. These are good, high-paying jobs right here in America, and it will also generate nearly 20 billion dollars in federal, state, county and local tax revenue. This is a win-win….

By taking advantage of American sources of copper, we can prevent supply disruptions and decrease our dependence on foreign imports. But most importantly, Mr. Chairman, this bill creates thousands of American jobs in a responsible manner at no cost to the taxpayer. I urge my colleagues to support this bill.”

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Filed Under: Economic Development, Elected Officials, Jobs/Labor, Legislation, Press Release Tagged With: ,

Rep. Flake Praises House Passage of Southeast Arizona Land Transfer Jobs Bill

October 26, 2011 By Leave a Comment

FOR IMMEDIATE RELEASE: October 26, 2011
CONTACT: Genevieve Frye Rozanzky

Land Exchange and Development of Copper Mine Strikes the Right Balance Between Conservation and Economic Growth

Washington, D.C. – Republican Congressman Jeff Flake, who represents Arizona’s Sixth District, today praised the House passage of H.R. 1904, the Southeast Arizona Land Exchange and Conservation Act of 2011, which facilitates the development of an underground copper mine near Superior, Arizona for the largest undeveloped copper deposit in North America.

According to a recent independent economic analysis, the construction and future maintenance of the mine will create and support 3,700 jobs annually.

The land exchange necessary to the development of the mine would bring more than 5,500 acres of conservation lands into federal stewardship in exchange for approximately 2,600 acres of federal lands and would be facilitated at no cost to the federal government.

“There are thousands of people in Arizona who will be especially grateful for the jobs they’ll have as a result of this mine,” said Flake. “Rarely does Congress have the opportunity to approve a measure that allows the private sector to create jobs at no cost to the federal government all while protecting thousands of acres of environmentally-sensitive land.” 

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Filed Under: Economic Development, Elected Officials, Federal Government, Legislation, Press Release Tagged With: ,

Rep. Flake Supports the Southeast Arizona Land Transfer Jobs Bill

October 25, 2011 By 5 Comments

Congressman Flake speaks in support of legislation to allow for the development of a new copper mine in Superior, Arizona which will create thousands of jobs.

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Filed Under: Economic Development, Elected Officials, Environment, Federal Government, Jobs/Labor, Press Release Tagged With: , ,

Government: A lousy venture capitalist

September 14, 2011 By 2 Comments

by Byron Schlomach
Goldwater Institute

When state legislatures reconvene in January, a priority for many will be passing some kind of “jobs” bill. What form that might take is open to debate, but there are already lessons to be learned on what not to do.

In 2009 the Arizona legislature, like many other states, passed a bill providing “tax incentives” (AKA subsidies) for renewable-energy industries. The legislature partly responded to pressure from those who thought they’d found the next big thing in “green jobs.” It also followed on the heels of a new solar panel factory in Tucson, Arizona.

Now that solar panel factory is closing only three years into its tenure. And it’s not alone. Another plant in Massachusetts has closed. Especially notable, a company called Solyndra, with a half billion dollars in federal loan guarantees, has declared bankruptcy.

That’s not a great track record, and it proves a point: Government makes a lousy venture capitalist.

Venture capitalists lose their money sometimes, but that’s the point: it’s their money. Government has no business risking taxpayer resources or disrupting tax systems to favor some businesses over others in an effort to directly create jobs.

Unfortunately, the Arizona legislature did it again in creating the Arizona Commerce Authority, with its ability to directly subsidize companies. The legislature would have doubled down on this bad bet with SB 1041 last session but for Governor Brewer’s veto.

Our legislature needs to rein in local regulation, create a more rational tax system, and free up the state’s natural resources. For example, cities require too many permits and take too long to issue them, we tax businesses too heavily, and public ownership of land ties up resources in too much red tape.

While not as sexy as attending ribbon-cuttings at solar panel plants, addressing such issues would have a more lasting, positive impact on the economy.

Dr. Byron Schlomach is the director of the Goldwater Institute’s Center for Economic Prosperity.

Learn  More:

Institute for Energy Research: Solar Manufacturers Slowly Closing Up Shop In U.S.

Arizona Republic: Solar-panel plant to open in Tucson

Bloomberg: Obama Team Backed $535 Million Solyndra Aid as Auditor Warned on Finances

Filed Under: Economic Development, Economics, Government, Spending, State Economy, State Government, Taxation

State legislators should learn from failed federal stimulus efforts

September 13, 2011 By 7 Comments

by Stephen Slivinski
Goldwater Institute

State legislators looking to spur job creation should reject federal stimulus efforts as a model. In fact, there are at least two lessons in what not to do that policymakers can learn from President Obama’s failed effort to energize economic growth through government spending and temporary tax gimmicks.

Lesson 1: Government spending does not usually create new employment opportunities for the unemployed. A study from the Mercatus Center at George Mason University shows the firms that received federal stimulus money were more likely to hire currently-employed workers from other firms or from outside the labor force than from the ranks of the unemployed. That’s because the money was directed not by market forces but by bureaucrats. As a result, it went to firms that weren’t necessarily prone to new investment or the most in need of assistance.

Lesson 2: Temporary measures don’t spur new long-run economic activity. Imagine a temporary tax cut that is meant to spur hiring today. The business that might need to hire a worker knows the benefit will likely disappear in a few years. So they will either avoid hiring or they will simply hire workers on only a temporary basis.

Added to these economic truths is the continuing uncertainty of future tax and regulatory burdens coming from Washington. The federal government has queued up economic threats just waiting to pounce on businesses, from new air-quality controls to the massive debt load that could precipitate higher taxes in the future. Federal policy seems bent on ensuring a high degree of uncertainty and growth-dampening policies that hang like smog over the future.

Against that backdrop, it’s no wonder businesses are sitting on their investment capital instead of taking the risks that are vital to robust economic growth and job creation.

Elected officials at state capitols should learn from these mistakes and instead focus on ways to lower the regulatory and tax burdens on all businesses, not just a select group, and to do so for the long run by making those changes permanent.

Stephen Slivinski is senior economist for the Goldwater Institute.

Learn More:

Goldwater Institute: The pitfall of do-something tax policy

Mercatus Center: Did Stimulus Dollars Hire the Unemployed?

Mercatus Center: No Such Thing as Shovel Ready: The Supply Side of the Recovery Act

Filed Under: Economic Development, Economics, Jobs/Labor, Spending, State Economy, State Government
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