The pitfall of “do-something” tax policy

by Stephen Slivinski
Goldwater Institute

The mantra of Arizona legislators this session was “jobs, jobs, jobs” — certainly an important emphasis for any policymaker. But the desire to appear to be doing something, anything, to spur job growth sometimes sucked them into legislation that will be counterproductive to long-term economic growth.

Take Senate Bill 1041, for example, which would significantly lower property taxes for new businesses locating to or being created in Arizona, provided the companies invest a certain amount of money in their operation and hire a minimum number of employees. The bill passed both the House and Senate handily by the votes of virtually all Republican legislators and awaits the governor’s signature. The bill, however, is more than unfair to businesses that have been operating in Arizona awhile and have already hired employees and made their investments.

Some of the bill’s support was motivated by a genuine belief that carving out special benefits is a sustainable economic development strategy. But other legislators fell prey to the “do-something” impulse, explaining as the bill’s primary sponsor, Rep. Michele Reagan, did in the Arizona Republic that the bill will make Arizona more competitive while we wait for other business tax cuts to start in 2013.

Regardless of legislators’ sense of urgency or earnestness, the “do-something” bill they supported is bad policy. First, preferential tax treatment for new businesses sticks existing businesses with a higher tax burden that effectively subsidizes their competitors.

Second, SB 1041’s tax breaks will be difficult to undo; the businesses that take advantage of them aren’t likely to give them up easily when the legislation sunsets in 2017. The businesses that happen to re-locate to Arizona and claim they did so to take advantage of the tax favoritism – whether that was true or not – can hold state tax policy hostage in the future by threatening to pick up and leave if the favorable tax treatment isn’t renewed.

Bad policies enacted as a temporary fix have a way of sticking around. And legislation full of special favors like SB 1041 makes it more difficult to pass the fundamental tax reforms that can truly make Arizona more competitive in the long run.

Stephen Slivinski is senior economist with the Goldwater Institute.

Learn More:

Goldwater Institute: Politicians go on “jobs poaching expeditions

Goldwater Institute: Government attempts to second-guess the market are bad policy

National Federation of Independent Business: NFIB Opposes SB 1041 as Bad Tax Policy, Likely to Be Struck Down as Unconstitutional


Comments

  1. Dont worry Stephen, the AZ Commerce Authority will save Arizona with spectacular give-aways that will bring all kinds of high paying jobs to our state.
    The whole “Do Something” strategy is the result of our know nothing legislature that is full of idealogues with few new ideas and less experience. Once they get elected, they find out that the mantra of cut taxes and get rid of illegals only goes so far and then they actually have to produce some results, thus the “Do Something” strategy.
    There is no leadership in AZ. The legislators are slapping themselves on the back for their great ideas, which have produces a lot of nothing.
    Its real simple – reduce taxes / Across the board, not just for some special people that have the right lobbyists to get a few key phrases into a bill.
    Its real simple – reduce regulation on businesses so they can innovate and produce more and create jobs. The hard part is defining the intangilbles that attract businesses, like quality educational systems and other amenities that cost money. We need to find ways to attract profitable businesses without bribing them to come here. The next step for the “know nothings” will be to forbid AZ businesses from moving anything out of our state, and claim that other states dont play fair cause they are bribing them. Its a brutal world, we need to find a way to compete! I thought Barry Broome had this all figured out.

    • Not just know-nothing legislature, but corrupt Arizona Corporation Commission who finances the local elected officials and whose idea the “Commerce Authority” was along witih John Kavanaugh from LD8 who was a lawyer for the New York Port Authority, upon which this new “Commerce Authority” (read new bond and debt and spend Authority) was based.

  2. Small clarification to Steven’s post:: the bill would temporarily lower the property tax on new investments by companies either locating to Arizona, or current businesses investing in Arizona, with the tax reduction only applied to the incremental new investment. The companies would also have to meet certain job creation and wage thresholds in order to qualify for the temporary tax break (no employees drawing AHCCCS!).

    Any business could qualify for this temporary tax reduction that would apply only on the new investment. All they need to do is invest and hire! The other jobs bill does reduce taxes for all businesses. But in these times, it makes sense to provide some measure of incentive to induce hiring and investment, because the best welfare program is a job.

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