When I first heard Governor Brewer’s proposal to retire debt on the state’s capitol buildings, I thought it was a bad idea. The main reason: early-payoff penalties. There just was no good reason to bear such costs.

It turns out that early payoff penalties are not an issue. The state has to deposit a lump-sum of $106 million into an account that is held by a third party, over which ownership is exercised by the creditors who lent the state the $81 million secured by the capitol buildings. The cash substitutes for the buildings as collateral and we get back the deeds, free and clear.

The $106 million accounts for all the interest and principal we were going to have to spend to pay off the loan over the next 20 years. There is no pre-payment penalty.

Some might say that getting back the capitol buildings’ paper is just symbolic nonsense for the sake of the state’s centennial. And sentiment is a bad reason to pursue any policy. But this is more than a feel-good idea.

The biggest advantage to this early payoff, though, is that it avoids the temptation to spend temporary money on ongoing programs – the ones that it looks like we can afford now, but that we might not be able to afford later. We did that for several years before the recession, and look where that got us.

It’s not safe to assume we’ve entered into a long-term, steady economic expansion with steady government revenues to accompany it. So, while we have a temporary surplus, let’s pay down the state’s debt.

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

Learn more:

Office of the Governor: The Facts about a Capitol Buy-Back

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

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

The F-35 is America’s next fifth-generation, multi-role fighter that our military leaders have designated to replace our military’s current arsenal of ageing F-16 and F-18 fighters. The F-35 is a pragmatic approach to modernizing America’s air superiority by using the same platform to serve the Air Force, Navy, and Marines. The highly advanced capabilities of the F-35 will provide out troops in the air, sea and land with the technology and situational awareness to get the job done and safely return home.

A recent program update proves that 2011 was a banner year for the program. Of the 872 test flights and 6,622 test points the F-35 was to endure in 2011, the program surpassed those goals by flying 972 test flights and completing 7,823 test points. These flights and test points ensure that the plane is strong and reliable through hundreds of challenging scenarios. The results prove that the F-35 program is maturing faster than anticipated – which is a good problem to have when working with advanced military technology.

Despite these overachievements, we have seen a lot of change in America’s political landscape. Most significantly, the deficit reducing “supercommittee” failed, forcing $600 billion in mandatory cuts from Department of Defense programs. During negotiations leading up to the supercommittee, there was a groundswell of support for full program funding and members of the committee were prepared to defend the F-35 because they recognized it’s importance to America.

Unfortunately, because the committee failed, the program is once again under debate. As evidence, Defense Secretary Leon Panetta recently confirmed that he aims to cut Defense Department spending on next generation weapons programs which could include the F-35. While no one believes that the F-35 will be cancelled, small businesses right here in Arizona are watching closely to see if the Pentagon will uphold their commitment to program funding, since the small business community has capitalized their production lines in anticipation of program growth.

The bottom-line is that we cannot allow political expedience to dampen the progress of the F-35. The program is deeply connected to our economy and cuts would send ripple effects across a nation. The programs suppliers, consisting of 1,300 independent companies across the United States and supporting 127,000 jobs, have the most to lose. If those parts are no longer needed in the quantities that were originally requested, then those suppliers will be unable to meet payroll and the rising jobless claim rates in the United States will see a significant uptick.

The security of our nation and the protection of our troops are important to all of us. It is our job to ensure that the men and women in the armed services are armed with globally superior technology and protection. America’s ingenuity and industrial infrastructure can deliver that superiority, and we Americans can make sure that the program and our troops are fully supported. The F-35 is not just a budget line item. It is a line item that represents real people and business, and we need to let our elected officials in Washington know that we support the F-35.

Lt. Col. Wendy Rogers, USAF (retired) was one of the first 100 women pilots in today’s Air Force. In 2010, she ran and narrowly lost a bid for the Arizona State Senate in Democrat-leaning Legislative District 17. She owns and operates a Tempe-based office complex as well as a home inspection business with 10 fulltime employees operating in four counties. Lt Col Rogers and her retired Air Force husband have two adult ASU-grad children and live in Arizona’s brand new Congressional District 9.

Many people have asked me whether I believe there is a real chance for bi-partisanship, political civility and statesmanship to prevail in our current political climate. They are surprised when I say yes! The majority of legislation passed in every session at the capital is very much a product of bipartisan cooperation. Though said bills may be characterized as non controversial or “simple” they are numerous and have a real impact on people’s lives.

In times past, bipartisanship was only possible when bountiful state budgets provided ample capital with which to negotiate. This used to serve as the basis for bipartisan statesmanship and “compromise”. Regardless of what it is presently called what is obvious is that the elements of the art of statesmanship and compromise have now changed which must now be accomplished without the use of once seemingly limitless budgets.

It is an irrefutable fact that we no longer have discretionary funds. Those funds have been exhausted and we now find ourselves in debt. We could continue to borrow in order to support our operational costs but at some point we must recognize that such practices will cease to be an option.

Despite our circumstances I believe cooperation in our capital is still possible. In the last three years, we addressed the structural deficit through permanent spending reductions and through tough negotiations to only temporarily raise revenues. With these solutions behind us, it is now time to engage in meaningful policymaking. This will require us to put aside partisan bickering in order to concentrate on what is right and necessary for the good of all Arizona’s citizens.

We do also need to examine the hearts and minds of Arizonans to learn about their desires which with this state will move forward. Some desire their state government to secure everyone’s chances to their pursuit of happiness, individual competition as well as charitable opportunity. Others desire the redistribution of private wealth and increased dependency on the public funds of the state. It is time for the people to decide which philosophy will provide them with the best future.

Despite these conflicting ideological differences, I foresee what can hold us together is not unlike what cements the bonds between the men and women of our military. Our armed forces are comprised of Republicans and Democrats alike. They fight as one to defend our nation’s freedom. This serves as a great example of how people whom ascribe to extremely differing philosophies can still fight for a common cause.

Therefore, if we collectively hold a soft, unproductive economy and an insurmountable debt as our common enemy I propose we find the common ground with which to defeat it. If Democrats can’t agree to cut without raising taxes and Republicans won’t vote for increased taxes then let’s cap the budget where it is and dedicate future revenue increases and spending savings to service our debt and emergency contingencies.

So if bipartisanship is to be known as the act of people being intellectually engaged and ready to fight then surely there is room in the legislature for it. No good will be accomplished and our economic woes will never be resolved if the representatives of the people temper their passions and beliefs while trying to combat our common enemy.

We cannot allow for those whom seek to promote infighting in the pursuit of partisan advancement. The people of Arizona sent us 90 leaders to move Arizona forward. I am proud to honor and serve with this talented and resourceful group of public servants. I expect that in our 100th year of statehood we will live up to our obligation to provide for the common good, the security of the American Dream and to authentically come together to fight our common enemies. This is my New Year’s wish for my beloved Arizona.

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

Commends Governor Brewer’s Tax Proposal

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

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

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

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

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

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

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

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

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

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

Learn more:

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

In 1965, The Four Tops released a follow-up to their hit single, “I Can’t Help Myself (Sugar Pie Honey Bunch)” with a number called “It’s the Same Old Song.” It was, actually, nearly the same song as “Can’t Help Myself,” admits singer Abdul “Duke” Fakir, as he and songwriter Lamont Dozier were in a rush to produce something and “reversed [‘Can’t Help Myself’] with the same chord changes” to write “Same Old Song.”

In Arizona, we’re hearing the same old song about more money for education, now in the form of continuing the “temporary” 1 percent sales tax.

The Arizona Education Network says, “Studies show Arizona continually lags among the bottom of all states in terms of public education funding and academic performance,” as though speaking of money and student achievement in the same breath will somehow link them together.

As history shows, increases in education funding do not lead to higher levels of student achievement. In fact, education funding has been on the rise for decades with nothing to show for all that additional money.

Between 1985 and 2007, federal school spending increased 138 percent, and per-pupil expenditures around the country have more than doubled since 1970, says Stanford University’s Eric Hanushek.

In Arizona, reading scores for 4th graders on the Nation’s Report Card have changed little in the last decade, despite a 47 percent increase in total spending per pupil between 2000 and 2009. Interestingly, even when funding ticked down 4 percent between 2009 and 2010, not only does that make but a small dent in the earlier increases but scores did not change. Suggestions that Arizona’s low achievement levels are a result of funding levels ignore these findings.

Lawmakers should follow Gov. Jan Brewer’s lead and mark Arizona as the nation’s leader in education reform, as the East Valley Tribune reported last week, and keep the state committed to sound fiscal practices and a balanced budget.

Jonathan Butcher is education director for the Goldwater Institute.

Learn more:

East Valley Tribune: Brewer wants to revamp public education funding, expand private school options

Rolling Stone: The Four Tops Turn Fifty

Arizona Education Network: Arizona Voters Support Sales Tax Continuation to Fund Public Education

National School Choice Week

Arizona Auditor General: Arizona School District Spending

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

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

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

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

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

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

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

Learn more:

Arizona Republic: Plans for Arizona Budget Vary

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

FOR IMMEDIATE RELEASE: January 9, 2012
CONTACT: Matt Benson

Releases Bold Plan to Boost Economy, Reform Education and Modernize Government

PHOENIX – Governor Jan Brewer today unveiled for 2012 and beyond a detailed policy agenda designed to prepare the State of Arizona for its second century. The policy agenda accompanied the Governor’s delivery of the Centennial State of the State address.

“Arizonans can take heart in how far this state has come from the darkest days of the recession and fiscal crisis, but now is no time to lose focus,” said Governor Brewer. “Every one of us benefits daily from the wise foresight and dedication of Arizona’s founders and great leaders of the past. Now, we have an obligation to make the tough choices that will set a prosperous course for Arizona’s second century.

“That means clearing the unnecessary obstacles to economic growth, and building an education system worthy of your children’s limitless promise. It means modernizing state government to ensure it is both efficient and effective, and protecting the rights of Arizona citizens against a federal government that has lost its way.”

The policy agenda reinforces and furthers the Governor’s Four Cornerstones of Reform, a blueprint to:

• improve Arizona’s economic competitiveness;
• bring needed reforms to K-12 and higher education;
• modernize state government; and
• push back against a federal government that has exceeded its constitutional authority.

Additional policy initiatives in areas like economic development will be announced in the days ahead as Governor Brewer issues her state budget plan for Fiscal 2013.

1st Cornerstone: Economic Competitiveness 

The economy continues to be a top concern for Governor Brewer, though the outlook has brightened considerably in recent months. The State of Arizona added nearly 46,000 jobs between 2010 and 2011, and its job growth ranked 7th-best nationally.

Governor Brewer now asks the Legislature to build upon last year’s signature economic initiative –

the Arizona Competitiveness Package – with a new effort to prepare unemployed and underemployed Arizonans for new careers and aid small businesses by simplifying the state tax code. The Governor also reiterated her support for the proposed I-11, a planned interstate highway that would promote tourism and trade between two of the country’s fastest-growing metro areas: Phoenix and Las Vegas.

Additional economic initiatives include:

• Creation of a community-college scholarship program to help adults re-train and transition into careers that fulfill local needs.
• A requirement that individuals enrolling in a taxpayer-funded job-training program undergo drug testing.

2nd Cornerstone: Education 

Arizona already has the framework in place for comprehensive education reform with the Arizona Ready initiative. This plan establishes more rigorous standards for students, teachers and schools, provides new methods for parents to gauge student achievement and monitor school performance, and sets yearly benchmarks to track Arizona’s education improvements between now and 2020.

Funding is part of the education equation, as Governor Brewer recognized with her successful push for Proposition 100 in 2010. She always pledged that the 1-cent tax would expire after three years. And it will, in 2013, as the Governor reinforced today.

However, Governor Brewer will remain part of ongoing discussions about proper funding for education in Arizona, and believes the current model does little to encourage innovation or performance on the part of teachers, professors and administrators.

Governor Brewer’s education plan includes initiatives to:

• Implement performance-based funding for Arizona’s institutions of higher education, while reviewing and reforming Community College State Aid.
• Produce a searchable database so that every parent can research the license and any disciplinary actions taken against their children’s teachers, and reform the teacher decertification process.
• Lead a campaign this year to encourage involvement by parents in their children’s education.

3rd Cornerstone: State Government

The citizens of Arizona deserve a lean, effective and efficient State government.

Governor Brewer will create a Government Transformation Office, housed within the Department of Administration, which will be responsible for identifying process improvements and best practices to minimize redundancies and improve customer service. Governor Brewer also will pursue reforms that modernize the State personnel system, making it easier to hire and reward the most talented employees, while removing red tape that hinders removal of the least productive workers.

The State of Arizona has an obligation to vulnerable Arizonans, including the mentally ill and children under state supervision or care.

For the seriously mentally ill (SMI), planning already is underway for a pilot program that will integrate physical and behavioral health services for Medicaid-eligible SMI individuals. This approach is expected to result in fewer hospitalizations and less reliance on the crisis system.

In recent days, Governor Brewer was provided a series of recommendations by her Arizona Child Safety Task Force. While she continues to review those recommendations, the Governor proposes several child-safety initiatives for immediate adoption. They include:

• Involvement of law enforcement in all Priority 1 investigations that contain allegations of criminal conduct.
• Improvement of CPS caseworker training, both pre-service and continuing, including the training of CPS workers in law enforcement techniques.
• Overhaul of the abuse hotline to improve screening, decrease wait times and expedite high-priority calls.
• Introduction of Quality Management initiatives throughout CPS to streamline processes and improve outcomes for children.
• Enhance transparency and accountability.

4th Cornerstone: Renewed Federalism

The State of Arizona has a long history of pushing back against federal overreach, and will continue to be a national leader among states seeking a return to a system of cooperative federalism. Governor Brewer will maintain the defense of SB 1070, and will remain a vocal opponent of mandates under the federal health care law. Both landmark cases will be heard this year by the U.S. Supreme Court.

With this past fire season the worst in Arizona State history, mismanagement of federal lands came into frightening focus as yet another area in which the federal government has neglected its duties. Strategic thinning can both reduce the risk of massive blazes and be an economic benefit to rural communities. With today’s State of the State Address, Governor Brewer called upon the federal government to stop its needless delay of the 4 Forest Restoration Initiative, a breakthrough, collaborative plan to restore 2.4 million acres across the Kaibab, Coconino, Apache-Sitgreaves and Tonto national forests.

“We are all blessed to be Arizonans, and I am honored to have a hand in guiding this state into its second century,” said Governor Brewer. “Working together, and drawing upon the grit of Arizona’s founders and judgment of the giants of our past, I’m confident Arizona’s next 100 years can be even more fruitful than the last.”

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

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

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

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

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

Stephen Slivinski is senior economist for the Goldwater Institute.

Learn More:

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

Tax Foundation: State to State Migration Data

FOR IMMEDIATE RELEASE: January 4, 2012
CONTACT: Rachel Semmel

Scottsdale, Ariz. – Congressman David Schweikert welcomed Silicon Valley Bank to Arizona yesterday at a press conference announcing their expansion. Silicon Valley Bank will bring hundreds of well-paying, financial sector jobs to the state over the next few years, including a new branch in Tempe:

“I am thrilled that Silicon Valley Bank is coming to Arizona. Their decision to expand here is reflective of our high quality workforce and the fact that our state is a great place to live and create jobs,” said Rep. Schweikert.

“Arizona is open for business, and Silicon Valley Bank is exactly the type of business we desperately want here.”

NOTE: To view pictures of this event, click here.

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FOR IMMEDIATE RELEASE: December 21, 2011
CONTACT: Matthew Benson

Standard and Poor’s Upgrades Credit Outlook for State of Arizona
Latest Indication that the Arizona Comeback is in Progress

PHOENIX – One of the nation’s largest credit ratings services, Standard and Poor’s, announced today that it has upgraded to “stable” its outlook on the State of Arizona’s fiscal condition. S&P also upgraded to “stable” its outlook on the State’s certificates of participation and lease revenue debt.

State of Arizona finances previously carried a negative outlook from the credit ratings service.

“This is fantastic news, and serves as one more indication that Arizona is on the comeback trail,” said Governor Jan Brewer. “The last three years haven’t been easy. But I’m happy to say that the difficult decisions I’ve made, together with the Arizona Legislature, have helped put this state back on solid financial ground. For the first time in years, Arizona has a growing economy and a state government it can afford.”

In announcing the credit outlook revision, S&P pointed to the State of Arizona’s diverse economy, continued population growth, moderate debt burden and expectations of a sizable budget surplus in fiscal 2012.

“We base the outlook revision on what we view as Arizona’s improving fiscal outlook,” S&P credit analyst David Hitchcock explained in today’s report.

The S&P announcement is just the latest sign of the state’s improving economy and financial position. In other recent news:

- Arizona added 12,800 jobs in November, driving down the state’s unemployment rate to 8.7 percent. The rate is the state’s lowest since February 2009.

- Arizona has added an estimated 45,800 jobs so far this year. The state’s job growth from October 2010 to October 2011 ranked 7th best nationally, according to the U.S. Bureau of Labor Statistics.

- State revenues continue to outpace projections, and the Governor’s Office of Strategic Planning and Budgeting now estimates a combined surplus of $1.3 billion between the remainder of this fiscal year and next.

“Our mission isn’t accomplished, but today’s announcement from S&P is validation that we’re on the right path,” said Governor Brewer. “We’re going to keep state government small, efficient and effective, and continue working to put in place the conditions for private enterprise to flourish and grow. I believe that 2012, Arizona’s Centennial year, is going to bring more great news for the people of our state.”

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Ideally, state government would provide genuine public goods (in the strictest sense of the economic term “public good”) and provide a social safety net, with minimal harm to taxpayers and minimal drag on economic growth.

Government support for K-12 and college education (which now take up over half of the state budget) would be voucherized, with money going directly to families to empower them to shop among competing private and non-profit schools.

The vouchers would be means-tested so that low-income families received bigger vouchers, with a formula for extra subsidies for children diagnosed as having special needs.

If K-12 vouchers were deposited into tax-exempt education-savings accounts, families would have a strong incentive to bargain for lower tuition and to save and invest excess funds for future education, health and retirement purposes.

AHCCCS/Medicaid, which currently takes up a quarter of the state budget, needs radical reform. By correcting flaws in the federal tax code, we could encourage the vast majority of citizens to buy portable health-insurance coverage through tax-exempt health-savings accounts, with means-tested government support for the poor (including block-granted federal dollars).

For people who are too sick to be easily insurable in low-premium, high-deductible HSA plans, the government could maintain high-risk pools in coordination with private charities.

Along the same lines, unemployment insurance would be based on contributions to private, individual accounts so that individuals saved their own money when they were working and spent their own money when they lost their jobs, thus creating strong incentives to quickly find new jobs.

Many state highways and roads (which often involve public-good holdout problems) could be made self-funding through long-term private concessions to finance, build, maintain and operate new roads and new highway lane-mile capacity.

With the above reforms, Arizona’s general-fund budget would be $9 billion a year. Ideally, that would be funded with a broad-based retail sales-tax rate of less than 4 percent — no personal or corporate income taxes, and no local education property taxes (which currently take up at least half of people’s property-tax bills).

As long as we’re talking about the ideal world, let’s go further and assume that the federal government was limited to its proper functions under Article 1, Section 8 of the U.S. Constitution.

With a federal government one-fifth of its current size and funded by a 5 percent national retail-sales tax (eliminating federal income, capital gains, dividend and death taxes), Arizona taxpayers could readily afford to replace and reform many of the federal entitlement programs.

By paying for those functions with an additional statewide sales tax of 5 percent, we could limit the total combined federal, state and local sales-tax rate to about 15 percent.

With a total tax burden about 15 percent of GDP, Arizonans would have the most efficient, most pro-growth tax system in the developed world, resulting in real annual per capita economic growth around 3 percent.

At that rate, Arizonans would double their real wealth every 25 years.

The tough question is not whether this would be good for Arizona.

The tough political question is how we get there from here.

Tom Jenney is Arizona director of Americans for Prosperity, which seeks to educate citizens about economic policy.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Stephen Slivinski is senior economist for the Goldwater Institute.

Learn More:

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

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

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