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

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

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

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

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

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

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

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

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

# # #

NFIB is the nation’s leading small business association with 350,000 members nationwide and 7,500 in Arizona and has offices in Washington, D.C. and all 50 state capitals.  Founded in 1943 as a nonprofit, nonpartisan organization, NFIB gives small and independent business owners a voice in shaping the public policy issues that affect their business. NFIB’s powerful network of grassroots activists send their views directly to state and federal lawmakers through our unique member-only ballot, thus playing a critical role in supporting America’s free enterprise system. NFIB’s mission is to promote and protect the right of our members to own, operate and grow their businesses. More information is available online at www.NFIB.com/newsroom.

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)

If you’ve ever signed up for a magazine subscription, bought cable TV, or purchased something from an infomercial, you’ve probably encountered the automatic renewal process. After the initial subscription period ends, some companies continue charging you until you jump through myriad time-consuming hoops. And you may never get your money back.

This happens perpetually to Arizona workers, but the consequences are far greater. Year after year, unions take dues from the paychecks of government workers without asking them for permission. The unions then spend the millions of dollars raked in from automatic renewals to fund political warfare their own members oppose.

The Arizona Legislature is considering HB 2103, a bill that would require unions to get members’ permission every year before taking dues from their paychecks.

Under Arizona law, once you’ve joined a government-employee union, you’re never asked if you’d like to continue authorizing paycheck deductions. Big Labor diverts some of those deductions to political activism, which may directly conflict with your political beliefs and have little to do with your job.

For instance, the Service Employees International Union, which represents more than 1 million local and state government workers, public-school employees, and bus drivers nationally, spent much of 2010 organizing boycotts of Arizona in the wake of SB 1070, the immigration legislation overwhelmingly supported by Arizonans.

A half-dozen states have already passed similar paycheck-protection measures, including union strongholds Michigan and Ohio.

Within five years of the passage of Washington’s paycheck-protection law, voluntary paycheck deductions to the state’s teachers-union PAC had shrunk by 75 percent. Paycheck-protection legislation in Idaho and Utah yielded comparable results.

Paycheck-protection laws give government workers a greater voice and force unions to justify to their members why they should continue to subsidize union bosses’ political activism.

HB 2103 will restore the balance of power to working Arizonans – public employees and taxpayers alike.

Darcy Olsen is president and CEO of the Goldwater Institute.

Learn more:

Arizona State Legislature: HB 2103

Arizona Republic: Bill Would Stop Unions from Raiding Paychecks

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

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

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

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

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

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

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

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

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

Stephen Slivinski is senior economist for the Goldwater Institute.

Learn more:

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

Goldwater Institute: Investing in Arizona

PHOENIX, Ariz., April 10, 2012 — They had no way of knowing yesterday that today’s release of one of America’s most important economic indicators would show a possible stall in the nation’s recovery, but Rules Committee members of the Arizona House of Representatives proved very prescient in passing Senate Concurrent Resolution 1012.

“Today’s release of NFIB’s Small-Business Economics Trends report should remove any lingering doubt that the full House should pass SCR 1012 and get it on the November ballot for voters to have their say,” said Farrell Quinlan, Arizona state director for the National Federation of Independent Business (NFIB), America’s largest small-business association. “Combine today’s report with next week’s tax filing deadline and it’s beyond debate that the House needs to act now to send the strongest possible message to Arizona’s job creators that help is on the way.”

For almost 40 years, NFIB’s SBET has been one of the nation’s bellwether economic barometers, used by Federal Reserve chairmen, Congress, and presidential administrations. Release of today’s report shows its Optimism Index falling two points overall in March after six months of gains. Small business in no small matter, because Main Street enterprises employ the majority of working Americans and generate most new jobs—not big businesses, and certainly not big governments or labor unions.

“The mood of owners is subdued—they just can’t seem to shake off the uncertainties out there,” wrote NFIB’s chief economist, William Dunkelberg, in today’s report. “What we saw in March is painfully familiar – this was the same pattern of growth followed by months of decline from 2011. History appears to be repeating itself—and not in a good way.”

A capital expenditures category is one of 10 measurements the SBET takes each month, and March showed a sharp drop in new equipment and vehicle purchases. This, according to Quinlan, is where Arizona can step in to help. SCR 1012, also called the Small Business Jobs Creation Act, would unleash small business expansion by resetting the personal property tax exemption for new machinery and equipment purchases to an amount equal to the earnings of fifty Arizona workers (almost $2.4 million). Last month the referendum unanimously passed the Senate 30-0 while an identical bill (HCR 2009) passed the House 47-10 with an overwhelming bipartisan majority.

“You can say you intend to hire more workers, and all you’re doing is expressing a wish or a sentiment,” said Quinlan. “But when we see you adding more machinery, other equipment, and vehicles, the new jobs are sure to follow. That’s why NFIB is amplifying our call for the Arizona House to schedule a vote on SCR 1012 sooner rather than later—before Tax Day and the 100th day of the legislative session, both of which fall on April 17 this year. We need to send a message now that Arizona is open for business.”

# # #

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.

Click image to enlarge

Open your wallets even wider, Arizona taxpayers.

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

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

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

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

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

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

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

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

Mark Flatten is an investigative reporter with the Goldwater Institute.

Learn more:

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

Goldwater Institute: Recommendations for Reform

Tax policy is often like looking at a pointillist painting – stare closely at only a section, and you don’t have a sense of the whole picture. But when you back up, the picture comes into a focus.

Governor Brewer recently signed into law HB 2123 which will help policymakers and the public stand back and take a much-needed look at all the elements of the tax code at once.

The law creates a tax reform commission for Arizona that will be required to issue a report by October. The commission will take a look at how well or poorly the current system works overall relative to desired economic outcomes and the need to fund the government.

I know what you’re thinking, “oh good; another government commission.” But, other states, such as Georgia, have convened a similar sort of commission, and in many cases, the committee hearings and the resulting reports have motivated a healthy debate about the best sort of tax system the state should have. And that’s a good thing.

Too often, tax changes are made on an ad hoc basis or by voters at the ballot box based on political whim. Additionally, tinkering in one part of the tax code – usually by making exceptions for certain types of businesses – can lead to unintended consequences and pressures to keep taxes high on other business and industries.

Fundamental tax reform necessarily starts with a broad approach. The piecemeal fashion the Legislature and voters pursue now leads to relatively high tax rates and a narrower tax base. In other words, high taxes on some, low taxes on others, and a growing constituency of beneficiaries – whether it be special interest lobbyists, tax accountants, or legislators hoping to woo a certain type of business or industry – entrenches the current tax system and might even make it worse.

The first step in reforming the tax code is to view it in its entirety. Commissions are a common way to do that and they also help policymakers and the public understand what’s broken and – perhaps most important – whether any taxes should be substantially reformed, reduced, or terminated to help create jobs and raise family incomes.

Stephen Slivinski is senior economist with the Goldwater Institute.

Learn more:

Goldwater Institute: Arizona must choose the right path on tax policy

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

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

Consensus continues to grow regarding the need for e-fairness legislation as two prominent conservative bloggers recently voiced their support for the Marketplace Fairness Act. Neil Stevens’ post over the weekend on the conservative blog RedState explains how he’s come around on the idea of e-fairness legislation.

From Neil Stevens’ post on RedState:

“Also, we’re back to discussing the Marketplace Fairness Act. As we’ve discussed before, this is a bill that would give Congressional approval to an interstate compact between the states to collect sales tax across state lines, requires member states to harmonize their tax rules to fit in with the interstate system. The bill is gaining Congressional support this time around. In theory I’m fine with this. It’s Constitutional and it’s reasonable. I disagree with Overstock.com’s complaints of complexity, because the compact imposes restrictions on the way the states can tax items, and also creates mechanisms to ease collection of the taxes.”

In yesterday’s post on Hot Air, Jazz Shaw goes even further – saying he’s no longer “on the fence” about the Marketplace Fairness Act – especially after yet another conservative voice, Maine Governor Paul LePage (R), declared his support for it.

From Jazz Shaw’s post on Hot Air:

“As I’ve stated before, I was on the fence about this one for a long time. Even leaving aside the “taxes are bad” thing, anything which could impede online commerce just strikes a sour note with many of us. I had also considered the possibility that maybe this could be worked out at the state level, but a recent attempt in Illinois to do just that produced… nothing. But after sifting through all of the pros and cons, I have to admit that it may be time to just get it over with and do this.

The reason? Like it or not, fiscal conservatives must, at a minimum, believe in a level playing field. Equality of opportunity, not results… remember? After looking over the new Ryan Plan Part 2, I’m reminded that as we tighten our belt at the federal level, more and more things will need to be pushed back down to the states. Each of them will have to manage their budgets as they see best, and for the majority of them a state sales tax is part of their revenue stream. While it may be depressing, the feds need to provide each of them a chance to compete evenly…”

It may be time to just bite the bullet and pass this legislation.”

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

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

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

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

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

Stephen Slivinski is a senior economist with the Goldwater Institute.

Learn more:

Wall Street Journal: The Heartland Tax Rebellion

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

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

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

I’ll be blunt. Last year’s tepid reforms to the state’s pension systems were not enough.

Those reforms were probably about as far as the legislature could go and keep the pension systems in place for all future and existing public employees. But the only reform that can begin to dig us out of the financial hole pension systems represent would move all new employees to 401(k) plans. So far, that has been more than the legislature has wanted to bite off.

In the meantime, even the modest reforms passed last year have been under legal assault. The state recently lost a lawsuit in its bid to require employees in the Arizona State Retirement System (ASRS) to contribute a greater share of the pension system’s costs. Another lawsuit by judges would block any increases in their share of pension system costs and block modest limits on cost of living adjustments.

Judges participate in the Elected Official Retirement Plan (EORP) where employee contributions have been held to 7 percent of salary for at least a decade. Meanwhile, taxpayers are now contributing an average rate of almost 30 percent of salary, up from 7 percent a mere 10 years ago.

At least ASRS participants see their contributions rise and fall with taxpayers’. These judges are insisting that they not face any of the risk of their own retirements, even while they are still working.

Representative Kavanagh has proposed HCR 2060, a constitutional amendment to explicitly allow increases in EORP member pension fund contributions and to allow reductions in cost of living adjustments. This is minimal protection for taxpayers, especially when the judges who decide whether reforms are legal have a conflict of interest with the taxpayers they are sworn to protect.

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

Learn more:

Arizona Capitol Times: Judge overturns Arizona pension law change

Arizona Republic: Put-upon judges to defend their cushy pensions — in court

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

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

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

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

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

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

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

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

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

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

Learn more:

Goldwater Institute: The Missing Reform: Regulatory Tax Credits

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

Arizona Republic: Measure Itself Is Excessive

Arizona Republic: Tax credit could guard against regulatory abuse

We have been working with Republican legislators to refine the bill weights. The have had private access to our proposed weights prior to our publication of them.

The number of bills being tracked is 173 plus 37 bills that have strike all amendments.

There are a lot of legislators with high scores including many representatives who have +100% ratings!

Although we are well into the session, there are still many floor votes as well as committee votes to come. The scores currently are still heavily influenced by bill sponsorships compared to floor and committee votes, but, as more votes are taken, they will have an increasing impact on the scores as the session continues.

We have tightened up the categorization we apply to the scores. Reagan Republican and RINO have stayed the same, the Bipartisan Republican score range has expanded, and the other categories have higher score values with narrower ranges.

Click here to see the complete evaluation.

General Motors is moving 19,000 salaried workers off its pension plan to a 401(k) plan. The move will help reduce the risk GM’s pension poses to the company and investors, including the federal government – i.e., the American taxpayer. GM’s unfunded pension balance is currently $8.7 billion. GM’s profits in 2011 were $7.6 billion.

The new retirement plan makes sense for the company and for employees, who can now take an ownership stake in their retirement savings.

State governments would do well to consider taking similar steps. Arizona’s pension systems have a combined unfunded balance of $16 billion – an official total that is arguably low. State General Fund revenues stand at $8.4 billion, a position far more precarious than GM’s.

Moving state employees to 401(k)-style retirement plans not only makes fiscal sense, but would greatly reduce the risk to taxpayers, who, unlike investors in private companies, cannot simply opt-out of the risk by selling stock.

Dr. Byron Schlomach is Director of the Center for Economic Prosperity at the Goldwater Institute.

Learn more:

Joint Legislative Budget Committee: Historical General Fund Revenue Collections (PDF)

DailyFinance: General Motors Meets on Revenues, Misses on EPS

New York Times: G.M. Changes Pensions for Salaried Workers

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