Three Paths to Prosperity: An Examination of Proposals for Fundamental Tax Reform

Posted on February 09, 2004 | Type: Policy Report | Author: Debra Roubik
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Using a statistical model the VisionEcon Dynamic Revenue Model this study estimates the economic effects of repealing the corporate and personal income taxes in Arizona. In particular, it examines three specific proposals: two Goldwater Institute proposals and a proposal by former state treasurer Carol Springer. Under all three scenarios, repealing the income tax in Arizona would generate substantial employment and personal income growth when compared to the baseline trend.

The Springer proposal would create 7,100 new jobs per year on average and $11 billion in new personal income growth over a 15-year period. The Goldwater Institute proposals would generate between 10,800 and 14,100 new jobs per year on average and between $18 billion and $24 billion in new personal income growth during that same period.

Some argue that taxing retail services, which would be subject to the sales tax under each of the proposals analyzed here but are currently exempt, would be such a large drag on the Arizona economy that it would outstrip the economic impetus of repealing the income tax. But the projections made in this study suggest that the rising tide of increased economic growth, coupled with more money in the pockets of consumers, would likely counteract any negative effects of broadening the sales tax base to include retail services.

The projections of the VisionEcon Dynamic Revenue Model illuminate not only how much net growth can be gained from eliminating the corporate and personal income taxes, but also how much economic growth is actually lost due to Arizona's current tax mix. The costs are staggering: billions of dollars in foregone personal income growth and hundreds of thousands of jobs that won't materialize due to the presence of the personal and corporate income taxes.

Read Three Paths to Prosperity here.

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