The Hidden Cost of the Income Tax

By Stephen Slivinski, Goldwater Institute

Decades of experience have shown us that high taxes dampen economic growth. State policymakers hoping to encourage job growth are right to worry about their state’s tax load on the private sector.

What needs more attention than it gets now is what a state taxes. As it turns out, most states actually rely on the very tax that slows job growth the most: the income tax.

Most states, for instance, assess higher income tax rates on those with higher incomes. Not only does that penalize those who are most successful in the private sector, it inhibits job growth by making small businesses – which are typically the creators of the largest share of jobs in most states and pay their income taxes through the personal income tax code – pay higher taxes the more they grow.

States with graduated-rate income taxes, like Arizona, also tend to see government revenues grow faster than personal incomes and that means the government gets richer faster than the private sector. That’s always bad for long-term economic growth.

The best way out of the trap is to eliminate the tax that is the most damaging to economic growth. Eliminating the income tax in Arizona could not only remedy these problems but also help launch the state into the ranks of the economic powerhouses like Texas. This policy change could still create more than 20,000 new jobs in the first year because it gets rid of the hidden economic costs associated with an income tax.

Every state has natural advantages and disadvantages that policymakers cannot control. But they can control tax policy. Getting rid of the income tax is the only policy bold enough to fundamentally boost long-term economic growth in Arizona.

Stephen Slivinski is a senior economist at the Goldwater Institute.

Learn more:

Goldwater Institute: A New Tax Plan for a New Economy: How Eliminating the Income Tax Can Create Jobs

Cato Institute: State Income Taxes and Economic Growth

National Taxpayers Union Foundation: The Economic Impact of the Adoption of a State Income Tax in New Hampshire

Eliminating Arizona’s Income Tax Could Create 20,000 New Jobs in First Year

Phoenix, AZ—Eliminating Arizona’s state income tax could put 20,000 people to work in the first year alone and business activity in the state could rise by an additional $419 million each year, finds a new Goldwater Institute policy report released Thursday.

And Arizonans would have more money in their pockets to save, spend or invest.

In A New Tax Plan for a New Economy: How Eliminating the Income Tax Can Create Jobs, Goldwater Institute Senior Economist Stephen Slivinski argues that the income tax makes Arizona less attractive than our neighbors when companies want to expand and create new jobs, it takes hard-earned money out of worker’s pockets, and creates instability in state revenue levels. Slivinski recommends that lawmakers eliminate the income tax outright and shift to a broad-based sales tax.

“We are falling behind neighboring states in economic recovery, and just tweaking Arizona’s tax code around the edges will not bring about the long-term job growth that we need,” said Slivinski. “Eliminating the income tax is the only proposal bold enough to dramatically boost new economic growth and drive widespread job creation.”

Slivinski argues that Arizona’s tax structure is outdated, weighing the state down and getting in the way of long-term economic and job growth. Arizona lost nearly 300,000 jobs during the recession and has an unemployment rate of 8.3 percent, among the highest in the nation.

According to Slivinski, eliminating the state income tax would make Arizona more attractive to companies who want to expand. When job-creators can keep more of their earnings to reinvest in their businesses, they are more likely to expand and hire new workers. Under this tax plan, Arizona workers will enjoy not only more opportunities to find work, they will also keep more of the money they earn.

National economic data shows that states without an income tax see substantially stronger economic growth than the national average and states with income taxes. In Texas, for example, where there is no income tax, the state gained over 400,000 new jobs between May of 2007 and May of 2012, and the state has regained all the jobs that it lost during the recession.

Besides creating jobs and letting families keep more of their paychecks, eliminating the income tax will also help stabilize the state budget. Having a budget dependent on income taxes make state revenues more vulnerable to economic ups and downs, according to Slivinski. Income taxes make up nearly half of all state revenues and they are much more volatile than sales taxes. During a boom period in the economy, as incomes spike, so too does tax revenue, which allows for large increases in government spending. But when a recession hits and incomes dive, so too do tax collections and there is a big reduction in state revenues. This was a major cause of the most recent budget deficits and sent policymakers scrambling to cover the new spending they took on during the boom period.

In his report, Slivinski shows how to eliminate the income tax, keep the sales tax at the rate it is now, and still bring in the same amount of government revenue we see today. The report also recommends reforms to maximize this tax plan’s effectiveness, including unifying the sales tax base statewide and creating a constitutional amendment to stop state and local governments from creating an income tax in the future.

“By taking steps to eliminate the income tax, Arizona will signal to job-creators around the country that we are open for business and committed to making our state competitive,” said Slivinski. “The faster a plan to eliminate the income tax is enacted, the stronger the economic boost our state will receive.”

To read Stephen Slivinski’s biography, click here.

To read the report, click here.

The Goldwater Institute protects America’s greatest inheritance—the liberty and economic freedom of the individual—by holding government accountable and standing up for regular taxpayers just like you. Lear more about the Goldwater Institute at

Sewers vs. Sports Arenas

By Stephen Slivinski, Goldwater Institute

When government issues debt, you probably think it’s paying for the construction of a highway or water and sewer improvements – the sort of things that we usually expect government to provide.

For almost a quarter of state and local government debt in Arizona, however, the bonds pay for projects that directly benefit private interests instead of the public at large. And none of this debt is subject to the constitutional debt limits, nor did voters approve much of it.

The city of Glendale, Ariz. is a prime example of what can happen when government is not bound by constitutional debt limits. Over 40 percent of Glendale’s current long-term debt load ($475 million out of just over $1.12 billion in debt) goes to finance the hockey arena, the Cardinals stadium, hotel and retail centers, and subsidies to retail giant Cabelas. Glendale has used financing methods that keep its debt outside of the debt limits in the state constitution.

Repayment of the bonds is premised on the revenue that these projects are expected to generate from, say, well-attended hockey games or highly popular retail centers. But if that revenue never materializes, as has happened often, someone else will have to pay the bonds. Taxpayers are the likely target.

One way to protect the public’s money from special debt-financed subsidies to private interests is to put an overall cap on all government debt and to subject all local debt issuance to voter approval. These steps would require elected officials to make the case to voters that a bond to give subsidies to a sports team or a big retail corporation is more important than keeping open some of their bonding capacity for things like sewer improvements or public safety. When the trade-offs are so explicit, it’s unlikely that voters will approve letting local governments abuse their power to issue debt.

Stephen Slivinski is a senior economist at the Goldwater Institute.

Learn More:

Goldwater Institute: Cutting up the Credit Cards: Seven Ideas to Reform the Culture of Debt in State and Local Government

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

City of Glendale: Debt Management Plan

Passengers in the Same Cab: Free Speech and Economic Liberty

By Nick Dranias, Goldwater Institute

Last week the Arizona Supreme Court ruled in the Goldwater Institute’s favor that the First Amendment protected a tattoo business from being shut down by the City of Mesa, Arizona. The Court held that tattooing is a form of protected communication, just like painting or writing. Just as booksellers and art dealers are protected by First Amendment, so too are tattoo businesses. The decision illustrates that there is often no real distinction between economic liberty and free speech.

But that hasn’t stopped taxi regulators in New York City from trying to ban a smart phone app that hails cabs. Although the app simply allows passengers and taxi drivers to communicate with each other, regulators don’t like how the app bypasses laws that force passengers to call a service company’s dispatch center to arrange a ride. It is okay for a would-be passenger to stand in the rain on a street corner and wave their hand or whistle, but it is forbidden to sit at a table in Starbucks and press a button on a smart phone that communicates the same information directly to a taxi driver. Regulators want to stop taxi drivers and passengers from more conveniently communicating with each other—in practice, they want to ban a form of speech.

This is not just absurd regulation; like Mesa’s effort to close down a tattoo business, New York City’s action highlights the artificial divide between economic liberty and free speech that still drives much of constitutional law. In footnote 4 of a case called United States v. Carolene Products, the Supreme Court famously declared that economic liberty deserved less constitutional protection from the judiciary than so-called fundamental rights, like free speech. Most conservatives and libertarians have long denounced this decision, arguing that there is no principled way to justify treating free speech as more fundamental than economic liberty. This is because, in reality, neither right can be exercised freely without the other.

Modern technology is making this point ever more clear. Communication is increasingly the most important and dominant element of economic activity. Economic activities that previously required vast investments in physical and human capital, such as dispatched taxi service, now only need a couple of smartphones and the willingness to communicate through them.  It is becoming easier and easier to see that the regulation of most economic activities is, in substance, equally the regulation of speech—if not more so.

These trends will eventually swamp the artificial constitutional divide between free speech and economic liberty. And courts will have to decide whether to protect all forms of liberty equally. Let’s hope they follow the Arizona Supreme Court’s lead and choose to robustly protect both economic liberty and free speech, recognizing that freedom is freedom.

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:

New York Times: As a Taxi-Hailing App Comes to New York, Its Legality Is Questioned

U.S. Supreme Court: United States v. Carolene Products

Licensing Hurts

By Byron Schlomach, Ph.D., Goldwater Institute

After Hurricane Isaac blew through Louisiana, Gov. Bobby Jindal temporarily suspended licensing rules to allow EMTs to travel from other states and care for Louisianans. Similarly, after hurricanes ravaged Florida in 2004, then-Gov. Jeb Bush sought to ease licensing rules for roofers.

Professional licensing supposedly protects vulnerable people from the unscrupulous by putting government between us and those we would hire for services like plumbing and medicine. Yet, when unforeseen events like hurricanes make people even more vulnerable, authorities often ease or suspend licensing rules. These examples bear testimony to the fact that professional licensing hurts consumers of licensed professional services. When free enterprise prevails and demand rises, more individuals offer their services, even moving across states if necessary. Licensing prevents this, and leads to higher prices, lost opportunities, lives unsaved, and roofs unrepaired.

At a time when health care costs have risen faster than general inflation for decades, licensing laws prevent more people from practicing all aspects of medicine. A proposed law to allow out-of-state doctors to administer aid temporarily at a free clinic in Arizona was actively opposed by licensing advocates. Their offered “compromises” always consisted of red tape that would have prevented caring out-of-state doctors from bothering to come here.

Despite the heavy cost of licensing, every legislative session more professions seek to be licensed. Legislators should resist these efforts. Instead, if they want Arizona to be a land of opportunity, legislators should make private certification a more viable alternative to licensing and start repealing the licensing laws we already have on the books.

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

Learn more:

Goldwater Institute: Six Reforms to Occupational Licensing Laws

National Roofing Contractors Association: Florida roofing licensing laws complicate reroofing effort

WSLS 10: Gov. Jindal suspends EMT licensing requirements

Every Arizonan Owes More than $7,500 in State Debt

Contact: Lucy Caldwell, (602) 633-8986


Phoenix, AZ—Every Arizona household’s debt is getting bigger—but most people don’t even know they owe. In Arizona, every man, woman and child owes state and local governments more than $7,500 for bills ranging from sports stadiums to parking garages.

State and local per-person long-term debt grew from $4,568 per Arizonan in 2000 to $7,587 in 2009, an increase of 66 percent in less than a decade. Arizona’s per-person debt load is almost $1,000 more than the national median of around $6,800 in per-person debt.

The $7,587 owed by every Arizonan to pay off state and local debts is in addition to the $51,000 per-American share of the mounting federal debt.

In a new report, Cutting up the Credit Cards: Seven Ideas to Reform the Culture of Debt in State and Local Government, Goldwater Institute Senior Economist Stephen Slivinski examines the vastness of the state’s debt and recommends seven key reforms to rein in Arizona’s debt culture.

“In economic times like these, most people have their hands full trying to balance their own checkbooks,” said Slivinski. “Yet our policymakers can’t restrain themselves from committing to more and more new debt that Arizona families ultimately will have to pay off.”

Although Arizona’s framers established a constitutional debt limit to cap state debt to $350,000—roughly $8 million in today’s dollars—the limit is not effective at actually limiting debt. This is because the courts have interpreted the debt limit to apply only to a specific type of debt: the “full, faith, and credit,” or general obligation debt. Politicians are able to commit current and future taxpayers to paying off a variety of debt instruments—usually called “non-guaranteed debt”—that are not subject to the constitutional limit and often do not require voter approval.

Debt-service payments were the fastest growing category in Arizona’s noncapital budget for state general expenditures in the last decade, growing 170 percent from 2002 and 2009. Almost one quarter of all state and local debts in Arizona are for projects primarily benefitting private interests, such as shopping centers or sports arenas.

For many local governments, debt payments have caused cities to cut essential services.

For example, Glendale, Arizona recently fired 49 employees, including a handful of policemen, to help cover its $35 million spending gap. The city has paid the National Hockey League $50 million over the past two years to keep the Coyotes hockey team in the city’s taxpayer-financed Arena, fearing that if the Coyotes move, the city will be unable to pay off the debts it owes from constructing the arena in 2002. Meanwhile, the city has had to table plans to complete the remodel of the city’s courthouse and to build a new library.

“When our elected officials commit funds to private-interest projects like sports stadiums, it doesn’t just drive up our families’ tax bills—it often means cutting the services we rely on, like law enforcement in our neighborhoods and libraries for our children,” said Slivinski.

In his paper, Slivinski recommends seven reforms to rein in Arizona’s debt, including a strict cap on debt for state and local governments, voter approval of all debt at the local level, and transparency requirements for all state and local debt.

To read the entire report, click here.

For a bio and high definition photo of Goldwater Institute Senior Economist Stephen Slivinski, click here.

The Goldwater Institute protects America’s greatest inheritance – the liberty and economic freedom of the individual – by holding government accountable and standing up for regular taxpayers just like you.

Risky Business: Understanding the Business Side of Government Bonds

By Mark Flatten, Goldwater Institute

Three law firms dominate the legal work that goes into issuing state and local government debt in Arizona, according to a review of bond documents done by the Goldwater Institute. That finding is consistent with what bond lawyers and government officials have said in interviews about the industry.

Near the end of the lengthy documents that describe government bond offerings to investors is a section called “relationships among the parties.” This is where potential conflicts of interest among the law firms and bond houses involved in the deal are disclosed. The number of names that appear is small but the relationships are extensive.

The Goldwater Institute analyzed the official statements in 75 recent bond sales with a total value of almost $6.8 billion, issued by a variety of state and local governments, to determine who profits from putting the deals together. All but one of those issues involved at least one of the three law firms: Greenberg Traurig, Gust Rosenfeld or Squire Sanders. Two-thirds of the transactions involved more than one of the three firms in different roles.

Two other firms were involved in far fewer transactions, but did work for agencies such as the City of Tucson and state universities that issue large amounts of debt. Those firms are Ballard Spahr and Kutak Rock.

There is nothing illegal or unethical about the close relationships among the law firms, the bond houses they work for and the governments that issue the debt, as long as those relationships are disclosed and conflict-of-interest waivers are obtained.

To read the entire Watchdog Report, click here.

State Licensing Raises Prices, Reduces Job Opportunities

New Goldwater Institute Analysis Says Strengthening Fraud Laws Could Protect People Without Hurting the Economy

PHOENIX — State license requirements for professions ranging from fumigators and ginseng nurserymen to horse traders and hair braiders may cost Arizona more than half a billion dollars annually in lost economic activity, according to a new analysis from the Goldwater Institute.

In Six Reforms to Occupational Licensing Laws to Increase Jobs and Lower Costs, Goldwater Institute economist Byron Schlomach, Ph.D., details how government-required licensing hurts all Arizonans—job-seekers, consumers, and licensed professionals alike.

Licensing is harmful to job-seekers because it creates difficult barriers to entry for many professions. For instance, obtaining a cosmetology license in Arizona requires 1,450 hours of costly training at a cosmetology school, followed by $142 in exam fees and a combined 372 days of education and experience. “Licensing discourages people from entering an occupation in which they might succeed if their success hinged only on the satisfaction of customers,” said Schlomach.

The practice of licensing hurts consumers too, because it drives up the costs of available services. Ultimately higher prices hurt licensed service-providers themselves. “In response to higher prices, consumers either learn to do without those services or they do with less, thereby reducing their purchases of services from the licensed profession,” Schlomach noted.

Schlomach estimates that licensing may cost Arizona as much as $660 million annually in lost economic activity.

Yet this is not just about dollars and cents. Licensing requirements can intimately impact our daily lives. Consumers may forgo modest medical treatments because the cost to have a doctor perform the procedure is prohibitive. But if the treatment were allowed to be administered by a nurse or other professional, the price may be more affordable, putting the treatment financially within reach. Some people die without preparing a last will and testament, because an expert in will preparation cannot legally sell his services without completing law school and passing the bar exam, even if they never perform any other legal service besides will preparation.

Most licensing requirements are put in place in an effort to protect people from a dangerous or fraudulent service. In some cases licensing can protect consumers. But in other cases, requiring a person to be licensed doesn’t protect people at all. For example, some states require people to be licensed if they want to be called an interior designer. But interior designers can’t design the structure of a house or business. An interior designer is the person who picks the color scheme and decorative touches. Consumers don’t need the government to protect them from a bad paint job, says Schlomach.

Schlomach says strengthening the punishments for committing fraud could eliminate the need for some licensing requirements. “If a professional misrepresents who they are or the skills they have and someone gets hurt, they should be held accountable. And that can be done with existing laws, we don’t have to require a government license too,” said Schlomach.

An estimated 800 occupations are licensed in at least one state. In Arizona about 85 professions are required to be licensed by the government, making up approximately 10 percent of the state’s workforce.

In Six Reforms to Occupational Licensing Laws to Increase Jobs and Lower Costs, Schlomach identifies common-sense reforms that could open career opportunities and reduce prices without sacrificing consumer safety, including “sunrise” provisions to require licensing advocates prove the barriers are needed before they are enacted, and a requirement that all licensing laws be periodically reviewed to make sure they are meeting a real consumer safety function. Schlomach also recommends that licensing boards have a supermajority of members drawn from the general public rather than the licensed profession itself.

Read “Six Reforms to Occupational Licensing Laws to Increase Jobs and Lower Costs” here.

Read Byron Schlomach’s bio here.

For more information, contact Lucy Caldwell at (602) 633-8986.

The Goldwater Institute protects America’s greatest inheritance—the liberty and economic freedom of the individual—by holding government accountable and standing up for regular taxpayers just like you. Learn more about the Goldwater Institute at

Who’s Afraid of African Hair Braiders?

By Byron Schlomach, Ph.D.

Why are cosmetology boards so obsessed with African hair braiders? African hair braiding is a technique of braiding hair into intricate patterns without using any dangerous chemicals. And even though cosmetology schools rarely, if ever, teach the art, at least every other year a story appears somewhere in the country about an African immigrant or American teenager ordered by a cosmetology board to stop braiding hair for money.

The latest installment comes from an article in The New York Times Magazine, featuring a Sierra Leone immigrant in Colorado who has been denied a livelihood in the name of required government licensing. That article says 30 percent of the workforce today is required to have a license to perform their jobs. Other economists put the estimate at around 20 percent of American workers. Regardless, the author of the Times article got it right: licensing requirements blocks opportunity. It keeps enterprising Americans from moving up the economic ladder by starting their own businesses.

Though Arizona is not the worst of states when it comes to state licensing, the Institute for Justice recently produced a report rating Arizona the worst state – the very worst – when it comes to regulating certain low-income occupations. Combining the number of regulated low-income professions with the high bar of fees and red tape to get a license, we do more than any other state to deny people job opportunities by requiring they have a government license.

In a state with a lot of low-income workers, this is not a good place to be. Do we want people receiving government benefits or creating wealth so they can take care of their own families?

It’s time to rein in professional licensing. Here’s how:

  • Only a minority of licensing board members should come from the licensed professions.
  • The state should transition out of licensing and into certification for most currently licensed professions. Certification would allow both certified and uncertified professionals to practice a profession but require people to disclose their certification status. As part of this transition, the state should preempt local licensing with certification laws.

If Arizona takes on its burdensome professional licensing requirements, we will have an economically healthier state where opportunity for all can truly blossom.

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

Learn more:

New York Times Magazine: “So You Think You Can Be a Hair Braider?”

Institute for Justice: License to Work: A Study of Burdens from Occupational Licensing (PDF)

Fixing Arizona’s Income Gap

By Byron Schlomach, Ph.D.

First the bad news: Arizona’s per capita personal income is eleventh lowest among the states and is 14 percent lower than the national average. But there’s also good news: In the past, Arizona’s per capita income has been closer to the national average and there is no reason it cannot be again.

The chart below compares Arizona’s per capita income to the national average. Arizona’s relatively modest-sized population explains much of the big fluctuations that occur right into the 1990s since any change in large employers could be significantly reflected in the statistics. Another likely explanation is national defense spending. The big blip in 1941 coincides with the buildup to World War II. The next peak in 1952 coincides with Korea. The big rise in the 1960s coincides with Vietnam. During wars, both hot and cold, Arizona’s per capita personal income performed relatively well because we have a decent base of defense industry jobs. The last big drop in Arizona’s personal income occurred with the end of the Reagan defense buildup and the end of the Cold War. Arizona’s personal income then stabilized and we did not see another spike in personal income until the housing bubble.

(Full size chart available here.) There are a couple of lessons that can be learned from this chart. One is that Arizona must look to itself for increased prosperity, not uncertain federal defense spending or money from big banks taking advantage of federal housing programs, or any other government program at any level – federal, state, or local. Another lesson is that Arizonans cannot presently afford the expansive government programs and projects some other states can afford because our incomes won’t support them.

Arizona need not be doomed to always lag the nation in per capita personal income. If we get the basics right – good roads, sound property rights, little red tape, lean and efficient government – Arizonans’ creativity, willingness to take risks, and hard work will make our state the best that it can possibly be.

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

Learn more:

Goldwater Institute: Delivering an Anti-Poverty Revolution

Goldwater Institute: How to Win the War on Poverty: An Analysis of State Poverty Trends

Federal Reserve: Changes in U.S. Family Finances from 2007 to 2010 (PDF)

When It Comes to Tax Cuts, Size Doesn’t Always Matter

By Stephen Slivinski

Some are lamenting Arizona’s recent tax cuts and others are cheering. Both sides, however, are missing a larger point. Much of the discussion has focused on a big number: $2.5 billion. That’s the estimated size of these tax cuts over the next eight years.

Fixation on the overall size of the tax cut is not the whole story. The form of the tax cut matters, too, and perhaps more so. No matter what side you’re on, the truth is, a good portion of these tax cuts aren’t likely to produce new economic growth.

Imagine that a tax cut consisted entirely of tax credits to people who have red hair. That would create all kinds of adverse incentives. Hair dye is pretty cheap, and if the price were right, we all might become redheads to get the tax benefit. (Your tax auditor may not know the difference even if your stylist does.)

It’s not likely that such a tax credit would actually do much more than move resources around – paying for hair dye instead of a dinner at a restaurant, for instance. It won’t really create new economic activity.

As it stands now, at least 16 percent of the revenue estimate of the tax cuts signed into law fit into the category of the state trying to favor certain types of activity over others. For example, one specific tax credit to businesses that make a certain level of investment and create a certain number of jobs was expanded in this year’s tax legislation. As Robert Robb explained in the Arizona Republic recently, this is not likely to create new jobs; instead, it will likely subsidize job creation today that would have materialized sometime in the future anyway. We’ve seen this sort of thing before. A federal per job tax credit was enacted in 1977 and economists estimate that at least two-thirds of the supposedly “new” jobs that emerged would have appeared anyway.

If the goal of a tax cut is to spur new and long-term economic growth, tax cuts that lower rates for all businesses and individuals at the same time are better than those that require a business to take specific actions dictated by government.

Stephen Slivinski is a Senior Economist with the Goldwater Institute.

Learn more:

Goldwater Institute: Don’t Repeat Jimmy Carter’s Failed Policies in Special Session Jobs Bill

Arizona Republic: “Refundable Tax Credit Way Over the Top

Arizona Capitol Times: “GOP Touts $2.5 Billion in Tax Cuts, but Critics Say Arizona Can’t Afford Them

The Supreme Court Could End Goverment-Sponsored Cartels

By Clint Bolick

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 Death Grip

Arizona’s Secret Growth Industry

By Stephen Slivinski

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

Specialty Trade Contractors 10.5%
Securities and Commodities 6.3%
State Government Educational Services 6.3%
Building Services 5.7%
Arts, Entertainment, and Recreation 5.7%

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

Why I’m Not Buying a House in Glendale, Ariz.

By Byron Schlomach, Ph.D.

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 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

Job Creators Cheer Referral of Proposition 116

Small Business Job Creation Act rolls back job-killing equipment and machinery tax

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

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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

How to Make the Sun Shine on Solar Energy

By Stephen Slivinski

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

Arizona’s State and Local Governments: Weighing Us Down

By Byron Schlomach

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)