Among the New Deal relics that persist today are federal dairy laws that restrict competition over milk prices. The Hettinga family, which owns two Arizona dairies, managed to lower prices through an exemption in the law, which ultimately led to the repeal of the exemption, and forced the Hettingas into the government-created dairy cartel.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit, applying long-standing precedent, unanimously upheld the law. But Judge Janice Brown, who previously penned passionate pro-freedom opinions as a justice of the California Supreme Court, wrote a concurring opinion joined by Judge David Sentelle condemning the state of economic liberty jurisprudence.

The law, Judge Brown wrote, illustrates the “gap between the rhetoric of free markets and the reality of ubiquitous regulation.” The “ugly truth” is that “America’s cowboy capitalism was long ago disarmed by a democratic process increasingly dominated by powerful groups with economic interests antithetical to competitors and consumers.” The courts, Brown lamented, “have been negotiating the terms of the surrender since the 1930s,” removing “any check on the group interests that all too often control the democratic process.”

She’s right: if the courts fail to protect freedom of enterprise, then constitutional protections are not worth the paper on which they’re written. And by applying the so-called “rational basis” test—which requires neither a basis nor one that is rational—federal courts have upheld all manner of economic regulations. Bravo, Judge Janice Brown.

Here’s hoping the U.S. Supreme Court will hear the case and heed her wisdom.

Clint Bolick is Vice President of Litigation at the Goldwater Institute.

Learn more:

U. S. District Court: Hettinga v. United States (PDF)

Wikipedia: Janice Brown

Amazon.com: Death Grip

Last week, the U.S. Department of Labor released employment data for all 50 states. Arizona has done reasonably well since March 2011, adding 47,000 non-farm jobs. That’s a growth rate of around 2 percent and puts Arizona among the top 10 states.

The Arizona Republic mentioned these numbers in their annual employment survey of the largest companies in the state and concluded that large employers were helping lead the state into a recovery. The Arizona Department of Administration reported that the biggest absolute job gain was in the leisure and hospitality industry (10,700 new jobs).

But digging deeper into the employment data reveals that Wal-Mart and tourism aren’t the state’s real growth industries.

In percentage terms, the fastest-growing industry was specialty contractors. Tied for second place were the securities and commodities industry and the state public education system, which includes the state universities.

Top Five Industries by Employment Growth

Source: Author’s calculations based on data from U.S. Department of Labor

It’s worth noting that the biggest employer in the state is not Wal-Mart, as the Arizona Republic concludes. The biggest employer in Arizona is the government.

State government as a whole has more than twice as many employees as Wal-Mart in Arizona, and total state and local public education employees outnumber Wal-Mart employees by more than 6 to 1.

The growth in the ranks of public education employees means more resources go to government. Unfortunately, there has been little in the way of an honest appraisal of whether those additional resources will add more value for taxpayers or students. In the meantime, policymakers should recognize that until we have real limits on the growth of government, government will continue to compete with private industries for the title of “top growth industry.”

Stephen Slivinski is an economist with the Goldwater Institute.

Learn more:

Arizona Department of Administration: Job Gains Across All Sectors (PDF)

Arizona Republic: Arizona’s Big Companies Boost Jobs Recovery

Goldwater Institute: Put Arizona on a Real Budget

After well over four years in Arizona, my wife and I have finally sold our property in Texas and we’re ready to buy a house here. I work near downtown Phoenix, but we’d like a little room and we’re not flush with cash, so I’m willing to drive. That means we could choose to live in most communities in the Valley, as long as they’re within about 20 miles of downtown Phoenix. One city in particular, though, is scratched off the list: Glendale.

I personally consider some parts of Glendale to have a lot of potential. There are some nice neighborhoods, some good schools, and drive times would be tolerable. The idea of moving to Glendale, however, looks too much like a crapshoot. If I wanted to gamble, I could go to a casino. But I don’t want to gamble with an asset as big and as important as a house.

The risk comes from the fast-and-loose way Glendale’s leadership has played with taxpayers’ money. The city has used sales tax proceeds to guarantee bonds for sports venues I personally would never use. It is also paying the National Hockey League to keep the Coyotes at Jobing.com Arena. Meanwhile, parks and a library annex, things I might use, will not be funded at levels once expected. Facing a $35 million budget deficit this year alone, the city is literally teetering on the edge of bankruptcy.

Top this off with a sales tax increase that will make Glendale’s the highest sales tax rate in the nation among major cities, and an expected property tax increase, and I cannot predict what my cost of living in Glendale is likely to be. At this rate, the value of any house I buy could be hurt just by being located in Glendale.

I love my family. I’m not taking the chance. I’m not buying a house in Glendale.

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

Learn more:

Arizona Republic: Glendale Leaders Mull Proposed Hike in Property Taxes, Layoffs

Tax Foundation: Glendale Considers Sales Tax Hike to Highest in Nation, Property Tax Hike

PHOENIX, Ariz., April 25, 2012 — The Arizona Secretary of State today received transmission from the Arizona Legislature of a crucial ballot referendum designed to spur new job creation and economic development. The state constitutional amendment, called the Small Business Job Creation Act, is positioned to be on Arizona’s November 6, 2012 General Election ballot as Proposition 116.

“Arizona’s small business job creators have heard loud and clear from their state legislators that help is on the way to rollback the job-killing equipment and machinery tax,” said Farrell Quinlan, state director for the National Federation of Independent Business who drafted the referendum with Senate Majority Leader Andy Biggs and other lawmakers.

“The heavy tax burden we place on small business’ equipment and machinery is self-defeating and anti-growth because it punishes the very investment in job creation that Arizona needs to fuel our economic recovery,” Quinlan said.

The Proposition 116 referendum, enumerated Senate Concurrent Resolution 1012 in its legislative form, seeks to amend the Arizona Constitution to reset the personal property tax exemption for new equipment and machinery purchases to an amount equal to the earnings of 50 Arizona workers, approximately $2.4 million. The current constitutional exemption is $50,000 indexed to inflation since 1996 or $68,079 in Tax Year 2012.

“We are very encouraged about Proposition 116’s ultimate success at the ballot box due to the unanimous bipartisan support it received from legislators. It’s a real testament to the soundness of this public policy proposal that every Republican and Democrat lawmaker voted for it. Proposition 116 proves the adage that good policy makes for good politics,” Quinlan concluded.

The unanimous legislative support for SCR 1012 is a rare example of bipartisan consensus from the contentious and often bitterly partisan 50th Arizona Legislature. The Arizona Senate passed the legislation 30-0 on February 16, 2012 and the Arizona House of Representatives passed it 51-0 with eight absent and one vacancy on April 23, 2012.

Proposition 116 must garner 50 percent plus one vote of those voting on the measure this November to amend the state constitution. If passed, the new provisions will affect personal property purchased in 2013 and thereafter while personal property already on the tax rolls will remain unaffected.

According to state law, the Secretary of State will make official the designation of the Small Business Job Creation Act referendum as Proposition 116 after the petition filing deadline passes for citizen initiatives on July 5, 2012. The Secretary of State is required to assign numbers to propositions in the order the measures are filed with their office. SCR 1012 was the third referendum filed for the 2012 ballot following the two measures sent by the Legislature in 2011 that will be designated Proposition 114 and Proposition 115 respectively in accordance with statute.

NFIB has already begun organizing a campaign committee to support the passage of Proposition 116. Those interested in joining that effort should contact NFIB’s Arizona office at (602) 263-7690 or send an email to farrell.quinlan@nfib.org.

# # #

NFIB is the nation’s leading small business association with 350,000 members nationwide and 7,500 in Arizona and has 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.

Recent news from the solar industry includes headlines about Germany cutting solar subsidies and Arizona-based First Solar laying off 30 percent of its employees.

First Solar’s move comes despite a grant of $16.3 million from the federal government’s Export-Import Bank in 2010 to expand one of its factories in Ohio. To sweeten the pot for First Solar, the Ex-Im Bank guaranteed more than $400 million in loans to St. Clair Solar in Canada to buy solar panels from First Solar. It turns out that the Canadian company was a wholly-owned subsidiary of First Solar, so the U.S. government was subsidizing the company to manufacture and then purchase its own product from itself. Even with those heavy subsidies, First Solar is still dimming.

Like the U.S., Germany has offered generous solar subsidies in the past. But now with substantial solar-energy capacity – perhaps too much to persist without subsidies – and serious economic trouble, Germany is cutting its solar subsidy programs.

Solar companies and governments seem to be learning a basic economic lesson. Duke economist Michael Munger explains, “if an activity is profitable, it produces more in value than it uses up in costs. If an activity is not profitable, it uses up more in resources than it produces in value.” If subsidies bolster a company’s bottom line, then the market signal of a company’s profitability is “fake, and the activity still uses up more resources than it produces in value.”

In the end, doing away with subsidies may lead to a brighter future for solar energy. Subsidies have shielded solar companies from competition and sometimes protected flawed business models. It’s too soon to tell whether the solar industry can be a viable long-term energy producer in a cost-effective and economically efficient way. But we may never know if we continue to protect it – and other energy sources – from competition.

Stephen Slivinski is senior economist for the Goldwater Institute.

Learn more:

Washington Examiner: Firm sells solar panels – to itself, taxpayers pay

Washington Post: Solar industry faces subsidy cuts in Europe

Prof. Michael Munger: Truly massive solar fail

Goldwater Institute: Government subsidized energy is just the same old song

Amid calls for increased state spending and fears of 2014 program cuts, some are calling for extending 2010’s sales tax increase indefinitely. However, Arizonans should understand how much their state and local governments cost before we let them charge us even more.

The graph below shows state and local governments’ direct expenditures as a percentage of private GDP for four states and the 50-state U.S. average from 1985 through 2009. This cost-of-government measure reflects government’s affordability to taxpayers.

Some states with high incomes and GDPs can conceivably “afford” more government. One of the most affordable state and local governments in the country in 2009 was Connecticut’s, partly because incomes (and GDP) in Connecticut is high. Currently, as can be seen in the graph, liberal New Jersey’s governments were more affordable than ours.

The percentage can go up because government spending rises or because GDP has fallen. GDP in Arizona has fallen lately (as it has in virtually every state) and this graph demonstrates that Arizona’s state and local governments have failed, worse than most, to shrink with Arizonans’ ability to afford them. Even before the recession, though, since 1999 the general trend has been less affordable government in Arizona.

In 1990, Arizona’s government burden as a percentage of private state GDP was the highest of all 50 states. The following decade saw tax cuts that shrank Arizona’s government burden until we were below the U.S. average. As a result, our economy boomed.

Now Arizona’s state and local governments are again above average in cost. Our government burden is closer to that of California than Texas, and the difference between the two states is striking. California’s unemployment rate is nearly 11 percent; Texas’ is above 7 percent, but only because so many people are moving there.

The numbers show that Arizona has failed to keep government small and economic growth high. We seem more focused on being a tired, flaccid has-been like California instead of an energetic economic leader like Texas.

Our state legislative leadership has it right: Resist increasing spending. Reduce the risk of raising taxes later. And lower the burden of government.

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

Learn more:

American Legislative Exchange Council: Rich States Poor States (PDF)

Joint Legislative Budget Board: (Legislative) Budget as Introduced (PDF)

Office of Strategic Planning and Budgeting: The Executive Budget Recommendation (PDF)

It’s federal tax day, and many wonder why they owe the government so much money. And those who receive refunds might wonder why the federal government kept so much in the first place.

Yet the shared experience of filling out tax forms – or paying someone to do it for us – should also have us wondering if there’s a better way.

Although a big part of the tax bite stems from functions government has taken on that could easily be handled by the private sector, the costs of complying with the federal tax code are nothing to sneeze at either. According to the Internal Revenue Service’s own calculations, U.S. taxpayers and businesses spend 6.1 billion hours a year complying with federal tax statutes. Translate that time into hours worked instead, and it amounts to more than three million full-time workers, or about 2 percent of current U.S. employment. By comparison, the number of employed Americans between 2008 and today has dropped by about 4 million.

All of this at a cost of $163 billion – money that could have been spent starting businesses, putting more money into savings, or paying household bills.

And these estimates don’t include state-level tax compliance. Although filling out federal tax forms is something every taxpayer in each state has to do, the residents of nine states don’t have to file out a state income tax form. That’s because those states don’t have an income tax.

Those states benefit in more ways than just the cost of time and money spent on filling out tax forms and engaging in tax planning. For instance, those states tend to have higher net job creation rates – about 10 percent higher than those with an income tax between 2000 and 2007.

Why? Because income tax systems penalize work and investment. On the other hand, consumption taxes – like sales taxes – encourage wealth creation.

Arizona policymakers should head toward a broad-based consumption tax that could eliminate some of the current system’s complexity and unlock economic growth.

It’s certainly something that must have crossed the minds of beleaguered taxpayers this week.

Stephen Slivinski is senior economist for the Goldwater Institute.

Learn more:

Internal Revenue Service: National Taxpayer Advocate 2010 Annual Report to Congress (PDF)

Goldwater Institute: Investing in Arizona

Click image to enlarge

Open your wallets even wider, Arizona taxpayers.

You may already know that every American is on the hook for just under $50,000, each person’s piece of the $15.6 trillion in debt run up by the federal government.

But what you may not know is that so much more is owed in your name; about $10,258 for every Arizonan’s share of the $66.5 billion in debt and unfunded obligations borrowed by state and local governments.

In a new report, Debt and Taxes, the Goldwater Institute breaks down that debt. It also enters the strange world of public finance where debt is not debt, governments are not governments and billions of dollars in obligations are supposedly traded without risk.

Most of the debt racked up by state and local governments – about $44 billion – is in bonds issued by the state, counties, cities, school districts and hundreds of other taxing authorities created as stand-alone governments under Arizona law. Billions more comes from shortfalls in pension plans for government workers. There is even $1.3 billion in payments the Legislature simply chose not to make to balance the state’s budget that is just floating around on the books.

The Arizona Constitution is supposed to limit the state’s total debt to $350,000. The tabs that can be run up by local governments have their own caps as well. But the courts have determined those limits only apply to certain types of debt. So governments in Arizona rely far more heavily on borrowing that is not confined by constitutional restrictions or requirements for voter approval.

The Goldwater Institute has developed a series of policy recommendations to curb the ability of state and local governments to bypass voters and avoid constitutional restrictions on issuing debt.

Why should you care? State Treasurer Doug Ducey said it best:

“Taxpayers should care about it because it’s an obligation that they or their children are going to have,” Ducey said. “People should be concerned about the amount of debt, the type of debt, and the fact that there is no overall plan to pay down the state debt.”

Mark Flatten is an investigative reporter with the Goldwater Institute.

Learn more:

Goldwater Institute: Debt and Taxes: Arizona Taxpayers on Hook for $66 Billion Tab Run Up by State, Local Governments

Goldwater Institute: Recommendations for Reform

            PHOENIX – Governor Jan Brewer today announced that Arizona ranks third in the nation in terms of solar system installation, according to the 2011 U.S. Solar Market Insight Report from the Solar Energy Industries Association (SEIA).

More impressive, Arizona’s energy production from photovoltaic systems jumped from 63 to 273 megawatts between 2010 and 2011 – a tremendous 333 percent rate of growth. Arizona now trails only California and New Jersey in terms of solar megawatt production, and the SEIA report projects Arizona will jump into 2^nd place nationally this year.

“This report illustrates why Arizona has earned the title of ‘Solar King,’” said Governor Brewer. “With our abundant sunshine, renewable-energy tax incentives and trained workforce, it’s no surprise solar energy production is soaring in Arizona.”

Nationally, energy production from photovoltaic installations grew 109 percent in 2011, according to the SEIA report. Growth was found in every market segment (residential, non-residential and utility), and project finance investments reached an all-time high. In total, $8.4 billion worth of photovoltaic systems were installed in the United States last year alone.

Solar energy is not only a clean fuel that reduces our nation’s dependence on foreign oil, it also creates quality jobs for Arizonans. The state ranked 3^rd nationally in 2011 with nearly 4,800 jobs in the solar energy field, according to the National Solar Jobs Census, issued in October by The Solar Foundation.

Since 2010, nine renewable-energy companies have located or expanded operations in Arizona – creating more than 2,100 jobs and investing more than $1 billion in capital.

To view the 2011 U.S. Solar Market Insight Report, visit: www.seia.org/cs/research/solarinsight 

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On March 12, the state senate in Oklahoma passed a bill that would immediately turn the state’s income tax into a flat tax, cut the tax rate in half, and strip away the extraneous tax credits and special carve-outs. Then, over a 10-year period, it would slowly phase the income tax out of existence by cutting the rates each year until they reach zero.

Meanwhile, in Arizona, special interests filed a ballot initiative for November that would extend the “temporary” sales tax increase passed by voters in 2010. Additionally, the initiative will lock-in automatic future increases in education spending, burdening taxpayers with ever-higher tax bills. Passage of this initiative will also guarantee that Arizona’s average state and local sales tax rate remains the second highest in the nation.

There is another path, however. The Speaker’s “jobs bill” (HB 2815), which has already passed the House, would eliminate the capital gains tax in Arizona, something no state with an income tax has yet done. In addition, the House has also passed HB 2123, which creates a tax-reform commission that will consider proposals to eliminate the income tax altogether, and issue recommendations by October.

This year, voters and policymakers will have a clear choice on what path tax policy in Arizona should take. Should we choose the path of high tax rates, a tax base with all sorts of special carve-outs, and business as usual at the Capitol? Or should we choose the path that lowers tax rates, makes the tax code more sane, and sets the state up for robust job growth and entrepreneurial activity that could make the state an economic powerhouse?

The choice is clear. Oklahoma has taken its first step down the right path. Arizona should too.

Stephen Slivinski is a senior economist with the Goldwater Institute.

Learn more:

Wall Street Journal: The Heartland Tax Rebellion

Oklahoma State Senate: Statement on the Passage of Tax Reform Bill SB 1571

Goldwater Institute: Unleashing Entrepreneurial Forces: States Can Spark Business Creation, Attract Venture Capital Investment, and Increase Job Growth by Eliminating Taxation of Capital Gains

Goldwater Institute: Investing in Arizona: How the Legislature Can Get Arizona’s Economy Moving Again by Reducing the Barriers to Investment and Job Creation

FOR IMMEDIATE RELEASE: March 5, 2012
CONTACT: press@antenori.com

Sitton’s Plan, Largely Copies Antenori Accomplishments 

TUCSON – The 10-point economic plan released late last week by Congressional candidate Dave Sitton in large parts mirrors the legislative accomplishments or positions taken at the state level by State Senator Frank Antenori, one of his opponents in the upcoming primary for Congress.

“If he supports what I do, then I don’t understand why he doesn’t just drop out and support me,” the Senator quipped.

“I don’t mind Dave advocating many of the same things I do or have done, but to call these original ideas is not accurate and is nothing more than a campaign stunt,” Antenori said. While my opponents in this race are spending their time trying to get their names in the newspaper, I’m working to cut spending, stop tax hikes, lessen regulation, and provide an environment to create jobs here in Arizona. And you know what? It’s working. Results are always better than talk.”

Frank Antenori is the only candidate that has proven results fighting for the people of southern Arizona. He has a record of shrinking government, reducing taxes, fixing the state’s budget crisis, and implementing policies that lead to job creation.

Facts:

• Antenori has fought to reform the tax code to make it simpler and fairer and has stopped tax increases on Arizona families. Neither Sitton, Kelly or McSally have stopped anyone’s tax increases.
• Antenori fought to eliminate Arizona’s $3 billion state budget deficit and build a surplus which can be set aside to reduce debt. Neither Sitton, Kelly or McSally have cut one dime from a spending program or reduced anyone’s debt.
• Antenori fought against passage of ObamaCare, voted to refer the HealthCare Freedom Act to the ballot to allow Arizona residents to opt out of ObamaCare (which was overwhelmingly approved by the voters), he voted to sue the federal government on behalf of Arizonans and has been calling for its repeal and replacement since its initial passage. Neither Sitton or McSally were part of the stop ObamaCare effort in Southern Arizona.
• Antenori is a leader in fostering policies to encourage free market competition in Arizona in all industries, receiving numerous awards from Arizona manufacturers and several small business groups for his efforts. Neither Sitton, Kelly or McSally have assisted any of those efforts in the State Legislature.
• As a battle tested Green Beret, Antenori has long been a supporter of our local military bases and has advocated on their behalf at the State level. Sponsoring and passing laws to stop encroachment and protect them from base realignment and closure (BRAC).

Antenori’s focus on restoring our economic competitiveness in Southern Arizona is:

1. Restore economic freedom and stop the federal government from picking winners and losers;
2. Stop runaway federal bureaucracies by requiring Congressional approval of any cost imposing rules or regulations;
3. Provide a statutory sunset and review of all federal regulations;
4. Reduce transportation and shipping costs for all businesses through an aggressive domestic energy production program;
5. Accelerate federal depreciation of equipment; and exempt investments for R & D
6. Reform the federal student loan program to better target assistance to courses that prepare students for jobs associated with the projected economic needs of the community;
7. Restore the integrity of private lending markets through the phased withdrawal of federal involvement that has clouded the assessment of risk and stalled lending;
8. Streamline federal approvals of all environmental permits and eliminate the endless bureaucratic and process delays that prevent legitimate projects from advancing;
9. Put strict time requirements on federal agencies to review a permit application with a designation that applications are deemed approved if not rejected within the designated time period;
10. End the federal government’s domination of Arizona land and allow the state to determine its best use;
11. Create a national security exemption for domestic energy exploration;
12. Provide a National Security Exemption to EPA for military installations and border infrastructure

-30-

Somebody hit the panic button too quickly at the Arizona Republic. A couple of weeks ago, its editorial board declared plans for a Regulatory Tax Credit would result in “regulatory Armageddon.”

No doubt the tax credit has the potential to encourage serious regulatory reform. It would allow victims of excessive regulation to bill the government for its regulatory overreach. But, far from Armageddon, the initial impact of the pilot program proposed by the Arizona House Leadership is downright tiny.

Beginning in 2015, the reform would give taxpayers only a modest tax credit — $1,000 per tax year for individuals and $3,000 per tax year for corporations. The total for all credits would be capped at $800,000 per year—an infinitesimal 0.02% of the $3.4 billion in annual state income tax revenues.

Given the tax credit’s tiny fiscal footprint, the real question is: Why would anyone be against it?

It can’t be the cost of administration. Estimated administrative costs would be roughly $350,000 per year. That’s $50,000 less than what Phoenix recently paid for a single study of excessive government employee compensation.

It can’t be tax evasion. The handful of taxpayers who would claim a regulatory tax credit would paint a target on their backs, risking tax audits if they make frivolous claims.

And it can’t be the definition of “excessive regulation.” To trigger a tax credit, the taxpayer must show that a regulation does not verifiably protect public health and safety or guard against fraud, dangerous occupations or harmful property uses and conditions. This is the very definition of a needless regulation.

Yes, the Regulatory Tax Credit would modestly require the government to foot the bill of excessive regulations for affected taxpayers. Hopefully someday the program will expand. But this would only motivate governments to consider more seriously how and whether to regulate people and businesses. It would not repeal a single regulation government was willing to pay for.

That’s good government – not “regulatory Armageddon.”

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:

Goldwater Institute: The Missing Reform: Regulatory Tax Credits

Arizona Legislature: Nick Dranias Testimony in support of HB2815 (at 3:52)

Arizona Republic: Measure Itself Is Excessive

Arizona Republic: Tax credit could guard against regulatory abuse

It’s like a bad re-run. A few legislators are trying to revive Arizona’s film production tax credit (SB 1170) that lapsed in 2011.

According to the last annual report on the effectiveness of the credit, in 2009 four media companies completed production on credit-approved projects. After taking into consideration the small bit of sales tax revenue the film generated while in production, the state paid out a net of just over $2 million in tax credits. That’s an average of half a million dollars per project.

How many jobs did that create? About 41 jobs directly related to the project and another 20 that were presumably from the ripple effect on the local economy. An analysis by economists at the W.P. Carey School at Arizona State University shows that these jobs were temporary and, thus, the post-production employment impact of this tax credit was “minimal.”

States like Washington and Iowa terminated their film credit programs last year and others have suspended them until their effectiveness can be studied. The general consensus among analysts is that these credits cost more than they’re worth and their existence owes more to star-struck policymakers than it does to economic logic.

The legislature this year, just as they did last year, should avoid putting Arizona taxpayers back on the hook for film production. Arizona doesn’t need to buy another ticket to this overpriced flop.

Stephen Slivinski is a Senior Economist for the Goldwater Institute.

Learn more:

Arizona Department of Commerce: Motion Picture Production Tax Incentive Annual Report for 2009 (PDF)

Tax Foundation: Report on Film Tax Credit (2011)

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

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