by Byron Schlomach, Ph.D.
Goldwater Institute
 
When government revenues drop during economic downturns, there are only three choices government officials have at the state and local levels. They cannot print money so they are left with reducing spending, raising taxes, or borrowing. Raising taxes is the worst option, with borrowing a close second.

Raising taxes assaults the very marrow of the economy; draining resources from the private sector at a time when it can least afford the loss. Borrowing money means an uncertain future burden. Both options make it harder to weather future economic storms. Right now, the state is spending $700 million more each month than it is collecting in tax revenue. All levels of Arizona government have a combined $41 billion in bonded debt.

Yet, many in government seem unconcerned. Everywhere one turns, new taxes are proposed. On Tuesday, Scottsdale and Tempe voters approved higher taxes on hotel room rentals. Phoenix just imposed a 2 percent food tax. The legislature is considering raising car rental taxes to pay for a new spring training stadium for the Chicago Cubs. The legislature also wants to raise license plate fees. Tucson is pondering a number of potential tax increases.

On May 18, voters across Arizona will consider an 18 percent increase in the state sales tax. Studies show that raising the sales tax by 18 percent will cut the state’s real economic output by $1.2 billion and that Arizonans will see their total after-tax income, already hit hard by recession, fall by an average of $300 per household.

What’s more, these proposals don’t take into account that the state’s property taxes went up this year, or the electricity tax passed by the Corporation Commission a few years ago.

This state has lost more than 10 percent of its private employment compared to its peak. State and local governments together have lost less than 6 percent of their workforces. The capacity of the private sector to pay higher taxes is at the breaking point. Even with an economic recovery, increased taxes will only feed an even bigger government that will be that much harder to finance in the next inevitable recession.

For now and for the future, reducing government spending is the only principled solution to the problem of shrinking government revenue.

Dr. Byron Schlomach is an economist and the director of the Center for Economic Prosperity at the Goldwater Institute.

Goldwater Institute
News Release

PHOENIX–Most Arizona families that receive welfare assistance have no one in the home working or training for a full-time job despite a federal mandate to do so, according to a new report from the Goldwater Institute.

In 1996, Congress passed a series of reforms commonly known as welfare-to-work, which reduced the number of people nationwide receiving direct welfare benefits from 4.4 million to 1.7 million by 2007. Welfare-to-work required states to motivate people on welfare to find at least part-time work or to enter job training to prepare for a new career.

Initially, Arizona had success with welfare-to-work. But once the state reduced its welfare enrollment by half, the federal government no longer held Arizona accountable for additional progress. In 2007, 9,662 Arizona families receiving welfare had at least one adult in the house who could work, but didn’t put in a single hour during the week. That made up 60 percent of all work-eligible welfare families.

In Making Welfare Work: Reforming Arizona’s Welfare System to Help Families and Save Money, Katherine K. Bradley, a visiting fellow at the Heritage Foundation, explains that other states continue to encourage welfare recipients to find work or job training with additional restrictions that go beyond the federal rules. “Arizona should consider reforms that would move more families into jobs and reduce the current welfare caseload in order to improve citizens’ independence and save millions of taxpayer dollars,” Ms. Bradley says.

Ms. Bradley suggests several steps that Arizona could take to move more people off of welfare, including:

· Set higher targets for getting welfare recipients into jobs or training. Hold staff at Department of Economic Security accountable for reaching those benchmarks.
· Require able-bodied recipients to immediately begin a four-week job search program. Recipients should report daily to a training site and log at least 30 hours a week of job search and training activity.
· Deny an entire welfare check the first time someone fails to report for work or job training.
· Require all parents of children receiving welfare payments to work. Illegal immigrants aren’t eligible for TANF checks, but their U.S.-born children are. U.S. citizens and immigrants alike should be required to work to support their children.
· Rely on private employers and community groups to manage work training and job placement.

Such requirements allowed Georgia to increase its work participation rate from 11 percent to 65 percent in three years, and Texas reduced its welfare enrollment by nearly half between 2003 and 2006.

Read Making Welfare Work: Reforming Arizona’s Welfare System to Help Families and Save Money online or call (602) 462-5000 to have a copy mailed to you.

The Goldwater Institute is an independent government watchdog supported by people who are committed to expanding free enterprise and liberty.

For Immediate Release: Friday, February 26, 2010

After Tuesday’s debate between AZ CD-1 Candidates in Show Low on economic issues, Bradley Beauchamp has distinguished himself as the strongest, most knowledgeable candidate in this crucial field.

The debate, originally scheduled between candidates Bradley Beauchamp, Rusty Bowers, and Paul Gosar was narrowed down to two candidates when it became apparent that Gosar was a no-show. Beauchamp and Bowers therefore, were left to display their knowledge of today’s economic issues.

According to a poll taken immediately after the well-attended event, Beauchamp received 90% of the votes cast, and Bowers merely 10%.

Karen MacKean, from Smart Girl Politics, commented on the evening, saying, “It was a spirited exchange between Bowers and Beauchamp, but Bradley Beauchamp clearly comes across as the conservative Constitutionalist. He is passionate, articulate and understands the issues.“

The debate, once again, proved that Beauchamp is the one candidate who is not only willing to travel the district, but can also diagnose, identify with, and improve the economic issues of today. His knowledge of business, commerce, and the Constitution are ideal for a district eager to hear sound reasoning and solid ideas.

“As a small businessman in Arizona, I understand the pressures we are all under. I also understand that best way for America to come out of this recession is to let the free-market work,” said Beauchamp, following the debate. “The people willing to create jobs are burdened enough by the government as it is. I will make sure the government gets out of the way and lets capitalism work for the people, as it was intended to.”

Bradley Beauchamp was born and raised in Arizona. He worked his way up from washing dishes in a café and laboring in a turquoise mine to becoming a schoolteacher, successful attorney and most importantly, a defender of the Constitution.

Bradley Beauchamp graduated from Northern Arizona University and began teaching

government and civics in Globe, Arizona. After several years in the classroom, and desiring to study the Constitution more in depth, he was accepted into the Thomas Jefferson School of Law. Upon graduating he returned to Globe to practice law in the small towns and rural communities of Arizona. He is endorsed by many Republican leaders in Arizona’s First Congressional District, including Charles Christensen, Bobbi Peterson, John Rhodes, Terri Kibler, and Rick Fernau.

Gabrielle Giffords voted for approval of the $787 billion stimulus bill without reading it beforehand. The consequence of this omission is Giffords could not have known that the stimulus bill was back-loaded for 2010 and beyond. Only 30% of the stimulus bill was spent during 2009, the year we needed to see at least 70% of it spent.

 Giffords also voted for the so-called “cap and trade” bill, also without reading it or the related amendment. In her letter to constituents, Giffords proudly claimed that the bill will actually reduce the average household utility bill by seven percent.

 Energy rates are projected to increase by 90%. Even President Obama admits that energy prices will “skyrocket” under “cap and trade.” On average, the cost for electricity for my residence is about $200 per month for electricity.  Under ACES, the acronym for the “cap and trade” bill, my monthly rate will increase to $380. Gifford claimed that rates will decrease by 7% by 2020. 

 Although the rate will be much higher than $380 per month in 2020, let’s use $380 as our example. A 7% decrease in 2020 translates to a monthly rate of $353.40 or a 77% increase over today’s rate. I don’t know what kind of math Gifford used but it does not add up. There is no 7% decrease, only a 77% increase. Experts agree that rates for electricity, gas, and natural gas will almost double across the board under this bill. ACES is a massive tax increase on the American people and Giffords has participated in one of the largest hoaxes in this nation’s history.

 In the July 16^, 2009, edition of Arizona Capitol Times, Giffords was interviewed. In the interview she claimed that 50 million people did not have access to health care and another 20 million are underinsured. The numbers are estimates not facts. Further Giffords claim that 50 million people do not have access to health care is palpably false.  What these people do not have is health care insurance but they do have access to health care.

 Additionally, Giffords has followed Nancy Pelosi’s orders on not only the stimulus and “cap and trade” bills but also the so-called S-CHIP $33 billion expansion of government health care, the Lilly Ledbetter Fair Pay Act (a sop to trial lawyers), the Stupak antiabortion amendment compromise to the health care bill, the Affordable Health Care for America Act adding $2 trillion to the deficit, the Medicare Physician Payment Reform adding more than $200 billion to the deficit, and the Permanent Estate Tax Act increasing inheritance taxes to 45% on estates larger than $3.5 million.

 In one of Giffords’ emails to her constituents, she wrote:

 ”I always appreciate hearing from constituents, like you, who are informed and interested in the important issues affecting Arizona and the nation.  My job as your representative is to help you connect with federal agencies, access services and get your questions answered thoroughly.  Please do not hesitate to contact me in the future if you require assistance.”

 Giffords failed to mention that her most important responsibility is to represent her constituents. Gabrielle Giffords is not a Blue Dog. She’s Nancy Pelosi’s lap dog. So far, it appears that she has been doing Nancy Pelosi’s business rather than the people’s business: not a very good track record to run on in the next election.

Goldwater Institute
News Release

PHOENIX–Some Arizona cities that recruit major shopping malls and high-rise buildings have used a special tax incentive that waives most of the development’s property taxes, often for 50 years or longer. A Goldwater Institute investigative report found development projects valued at more than $2 billion pay only a small fraction of what they otherwise would in property taxes. As a result, local governments raise property tax rates for nearby businesses and homes that don’t qualify for this special tax break.

To qualify for the property tax exemption, building developers transfer ownership of the property to the city and then lease it back to operate. State law requires that the developer pay a Government Property Lease Excise Tax, or GPLET, that is supposed to replace a significant portion of the waived property taxes. Mark Flatten, a Goldwater Institute investigative reporter, shows that GPLET projects throughout Arizona pay at least $31 million less in property taxes each year.

“Arizona’s high property taxes deter businesses from moving here. It’s no surprise that companies look for ways to lighten the tax burden using the GPLET system. However, any time you offer a tax break to one business, it should be available to all,” said Darcy Olsen, president and CEO of the Goldwater Institute. “GPLET programs that single out select businesses for deals essentially leave neighboring businesses and homeowners with the tab.”

Most GPLET projects are located in Tempe and Phoenix, where most downtown high-rises built since 1996 benefit from a property tax exemption. Other communities have started to approve GPLET projects as well. For example, Mesa has agreed to waive an estimated $776 million in property taxes over 50 years for a future convention center and luxury resort near Phoenix-Mesa Gateway Airport. Mr. Flatten reports cities generally don’t worry about lower property tax revenue because property taxes are a relatively small portion of their budgets.

School districts and community colleges, on the other hand, depend more heavily on property taxes. But school districts haven’t had to worry either, because the state government had filled the gap created by GPLET projects. That will change this year because lawmakers have changed the law that protected school district budgets. Now, GPLET projects likely will prompt school districts to raise property taxes or reduce spending. “It’s a great concern. It shifts the tax onto our property owners, our homeowners, and it’s a huge shift,” Antonio Sanchez, superintendent of the Wilson Elementary School District in Phoenix, told Mr. Flatten.

Some lawmakers have tried in the past to change GPLET laws to limit the length of the new leases and to increase the amount that new projects have to pay in excise taxes so that it is more comparable to what businesses that do not have a special exemption are required to pay. These efforts have been thwarted by lobbyists for cities and developers who expect to benefit in the future, Mr. Flatten reports. State Representative Rick Murphy has introduced a bill this year that will try to curb the practice.

The Goldwater Institute recommends that governments pursue economic development efforts that would benefit a wide range of businesses, instead of giving a handful preferential treatment. The Arizona Supreme Court recently reinforced the Arizona Constitution’s “Gift Clause,” a prohibition that GPLET leases might violate. Examples of more appropriate business incentives would include reducing property tax rates for businesses to match the rates paid by homeowners and the expansion of enterprise zones in which reduced tax rates are offered to all businesses.

“These deals show that Arizona’s tax burden is too high to attract business. That is easy to correct without giving special privileges to the few. Lower property taxes to competitive regional rates for all of our businesses and help Arizona grow its way out of the recession,” said Ms. Olsen.

Read “Shifting the Burden: Cities Waive Property Taxes for Favored Businesses” online here.

The Goldwater Institute is an independent government watchdog supported by people who are committed to expanding free enterprise and liberty.

by Clint Bolick
Goldwater Institute
 
Efforts to keep the Chicago Cubs in Mesa present the first opportunity to see if Arizona elected officials were paying attention to the Arizona Supreme Court decision striking down government subsidies to individual businesses. A city can construct and own a baseball stadium. (We’ll leave aside for now the question of whether that’s good public policy.) However, the funds being considered by the Legislature are problematic: a new tax on all tickets to Cactus League spring training games for the benefit of the Cubs and an increase to the already hefty car rental tax. Adopting these taxes to benefit a single sports franchise may constitute an illegal special law under the Arizona Constitution. The proposed bill would confer to a sports authority such unbounded power that it may be an improper delegation of legislative authority, which also presents constitutional problems.

The potential deal between Mesa, which will own the facility, and the Cubs also raises serious issues. Under the proposed deal, the Cubs reap all of the financial benefits and have to do little more than show up. Under the CityNorth decision, the beneficiary of a government incentive must produce roughly comparable direct, tangible benefits. The best way to achieve this is fair market rent, which the Cubs are apparently unwilling to pay. A deal probably could be constructed that complies with the constitution, but it will require the Cubs to make far greater commitments than they have appeared willing to do.

Any baseball fan would want to have the Cubs here. And certainly the Cactus League is a valuable asset. But at some point, incentives become illegal subsidies, and taxpayers are asked to do too much. We hope our elected officials will heed the wisdom of the Arizona Supreme Court in the CityNorth decision and honor their constitutional limits.

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

by Byron Schlomach, Ph.D.
Goldwater Institute
 
Governor Jan Brewer recently sent a letter to U.S. Transportation Secretary Ray LaHood and Arizona’s congressional delegation asking for a change in federal law to allow private companies to operate rest stops on interstate highways. Federal law prevents “automotive service stations or other commercial establishments for serving motor vehicle users to be constructed or located on the rights-of-way of the Interstate System.” Right now, 13 of the state’s 18 roadside rest stops are closed as part of the state’s efforts to save money. They could be re-opened sooner if Governor Brewer’s recommendation were adopted.

In exchange for maintaining clean public restrooms, parking areas, and places for drivers to leave their refuse, companies could operate drink and snack concessions at roadside rest stops. This would be a source of revenue because private companies would have to bid for the privilege of operating within the confines of the rest stops. While federal law should be written to give states maximum flexibility, a state could restrict vendors to selling only food and beverages to minimize taxpayer-subsidized competition with other established businesses.

The federal government already allows for states to contract with private companies to provide vending machines and “motorist call boxes” at interstate rest stops. A change in federal law to allow private food-and-drink concessions would be a win for everybody. Well-written contracts would mean better-maintained facilities and more services for weary travelers.

One thing is for certain. Open roadside rest stops are better than closed roadside rest stops. If letting the private sector operate rest stops means they will stay open, then let the private sector prevail.

Dr. Byron Schlomach is an economist and the director of the Center for Economic Prosperity at the Goldwater Institute.

by Byron Schlomach, Ph.D. 
Goldwater Institute
 
On March 9, Scottsdale and Tempe voters will decide whether to approve a two percentage point increase in their cities’ tax on hotel room rentals. In both cities, hotel associations seem united in support of the measures. The Surprise city council already approved its own bed tax increase earlier this month. It, too, was supported by the city’s hotel association.

Why would some hotels support taxing themselves? Many hoteliers hope to see the increased tax revenue used to lure more tourism to the state. That’s a long shot. Over time, travelers will find more affordable places to visit. The tax increase contemplated by Scottsdale and Tempe will make their hotel tax higher than those of Las Vegas, Palm Beach, and San Diego. It’s small comfort to know that large Texas cities have higher hotel taxes when that state has no income tax. In the long run, this tax strategy will strangle the goose that laid the tourism golden egg by making Arizona cities less competitive.

Only half of the new taxes will definitely go to tourism promotion. The rest could fund transit, public art, golf venues and in Scottsdale, an equestrian center. Both Scottsdale and Tempe are ignoring the common sense option of scaling back or selling off these luxury activities to bring government spending in line with revenue, avoiding any new taxes.

To revive tourism at a time when people are weighing their vacation options carefully, cities should consider reducing taxes on lodging altogether. That’ll send an inviting message to travelers and conventioneers that Scottsdale and Tempe welcome their business, and Arizona is ready to compete for visitor dollars.

Dr. Byron Schlomach is an economist and the director of the Center for Economic Prosperity at the Goldwater Institute.

By Byron Schlomach, Ph.D.
Goldwater Institute
 
I recently attended a meeting with Maurice McTigue, director of the Mercatus Center at George Mason University, a former member of the New Zealand Parliament, and a man with wide experience in government reform. Attendance at the meeting, arranged by State Senator Sylvia Allen, should have been required for everyone in our state government.

Prior to comprehensive reforms 20 years ago, New Zealand was an economic mess, suffering from debt, continual deficits, and a stagnating economy. Out of desperation, New Zealand’s political leaders reduced government spending and enacted fundamental, wide-ranging reform. Since then, New Zealand’s national government has seen a single deficit; it was this year and due to the worldwide recession.

One instructive example given by Mr. McTigue concerned agriculture subsidies, which, among other things, were artificially inflating land prices. Everybody knew land prices would collapse when those subsidies ended. Some estimated 31 percent of farmers and at least seven major banks would go bankrupt. Yet, with no bailout or any other government involvement, only one-half of 1 percent of farmers went bankrupt. And not a single bank went under.

An outbreak of “spontaneous economic order,” as Mr. McTigue described it, resulted. Banks re-valued loans to avoid defaults. Farmers renegotiated payment schedules. People figured out how to navigate the changing economy without government intervention.

This example may seem most applicable to federal financial policies in response to the U.S. real estate meltdown; but, the lesson is broader. We commonly hear stories that if Arizona cuts spending on parks or education or health care, our economy will collapse. Yet New Zealand’s experience illustrates that fundamental reform, rethinking, and shrinking of government should be welcomed, not feared.

Byron Schlomach, Ph.D., is the director of the Goldwater Institute’s Center for Economic Prosperity.

By Byron Schlomach, Ph.D.
Goldwater Institute 
 
On January 11, Chile was officially invited to join the Organization of Economic Cooperation and Development (OECD). Chile will be the OECD’s 31st member and its first from South America. The OECD is largely made up of the world’s richest and most stable economies and Chile’s invitation to join the club wasn’t always a given.

In the early 1970s, Chile’s economy was a basket case not unlike Haiti’s before last week’s earthquake. Abject poverty, rampant inflation, and high unemployment were the norm. There is no denying that Augusto Pinochet was a detestable tyrant, but he did one thing right after he took control of the country: he turned economic policy over to 10 Chilean economists who had been trained at the University of Chicago in the theories of John Locke and Nobel Prize winning economists F.A. Hayek and Milton Friedman.

The government began selling government-owned businesses, deregulating enterprises, and removing wage and price controls. In 1981, Chile’s social security system was privatized under the direction of Jose Pinera, who was given the Goldwater Award for Liberty in 2003 and is the brother of Chile’s just-elected President Sebastian Pinera. These economic policies set the stage for Chile to become South America’s most vibrant and successful economy.

Chile’s economic experience could be instructive to Arizona policymakers. Government-owned enterprises like stadiums and Phoenix’s Sheraton Hotel have become too common. The state still owns huge swaths of land that ought to be sold and put to use creating jobs. The state should also loosen regulations on wages. Arizona has the potential to create the most vibrant economy of any state in the union. We just need to be freed to exercise it.

Byron Schlomach, Ph.D., is the director of the Goldwater Institute’s Center for Economic Prosperity.