Corporate Tax Cuts Pushed in Arizona

Posted on September 24, 2002 | Type: In the News
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Study Says Lower Rates Would Boost State, Economy

Corporate tax rates in Arizona should be reduced to make the state more attractive to businesses, according to a study by a conservative Phoenix-based public policy group.

Arizona's top corporate income tax rate is 6.97 percent, higher than Utah, Colorado and Nevada, but lower than California and New Mexico, which have graduated rate systems, the Goldwater Institute said in a report.

In the study, economist Stephen Slivinski proposed six options ranging from lowering corporate income taxes to the same level as personal income, 5.04 percent, to what he called the "best option" - and also the most aggressive - of eliminating the corporate income tax and suspending the unemployment tax.

The study comes at a critical time for Arizona, which is facing a projected shortfall of up to $400 million for the current fiscal year, and as gubernatorial and legislative candidates gear up for the fall election.

Eliminating the corporate income tax and suspending the unemployment tax "could create an estimated 150,000 new jobs, boost payrolls in the state by $5.4 billion and be revenue-neutral during the first year," Slivinski wrote.

Sales tax and income tax generated through job creation would offset losses in corporate tax revenue, Slivinski said Monday.

But Tracy Clark, an economist at the Bank One Economic Outlook Center at Arizona State University, said he didn't think companies in the current weak economy would use any savings from corporate income taxes and unemployment taxes to hire more people.

That means that the proposal to eliminate the corporate tax and suspending the unemployment tax would not likely be "revenue-neutral" in the short term, Clark said.

Farrell Quinlan, a spokesman for the Arizona Chamber of Commerce, said the study makes a key point that raising taxes is not the best solution to solve the state's current budget shortfall.

The state should concentrate on lowering barriers to economic growth in Arizona, he said.

Corporate taxes have come down since 1993, when they were at 9.3 percent, he said. But high corporate property taxes are an even bigger concern for businesses looking to expand or relocate to Arizona, he said.

Economist Elliott Pollack said the study reflects the reality that Arizona businesses are highly taxed, and stressed that it is especially important for Arizona to be economically competitive for export-related companies such as high-tech firms, which "can go somewhere else."

- Tribune reporter Jolyn Okimoto Rosa can be reached by e-mail at jrosa@aztrib.com or by phoning (480) 898-6542.

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