There are a number of excellent tax cuts in Governor Jan Brewer’s jobs bill that’s the focus of this week’s special legislative session. The corporate tax rate cut to 4.9 percent from roughly 7 percent gets us closer to being competitive with other states such as Colorado. The property tax cut finally reduces a heavy tax load that has been carried by businesses for too long.
But the bill also includes a “deal closing” fund, which uses grants of taxpayer money as an enticement to companies to relocate to Arizona. There are also tax credits for job creation.
There are at least two main problems with policies like these: They don’t work, and they subsidize companies for taking actions they would have taken anyway.
Study after study of similar attempts by state governments to centrally manage some of the capital investment in the state through “deal closing” funds show these policies are particularly ineffective at improving the overall economic or job climate of a state.
The jobs tax credit is something we’ve seen before, too, in the economically disastrous years of the Jimmy Carter presidency. In 1977, the federal government created a tax credit per job for companies that increased the number of people they employed. Today, economists largely agree that at least two-thirds of the jobs created after creation of the tax credit would have been created anyway. Why should we assume that a per-job tax credit would be any more effective in Arizona today?
A much better approach is to go even further with tax cuts for all businesses across the board. Lowering the general cost of doing business in Arizona will create more jobs than cherry-picking a few popular companies as the governor wants to do.
Stephen Slivinski is senior economist at the Goldwater Institute.
Goldwater Institute: The path to jobs is not through the red ribbon
Mackinac Center: Literature Review and Analysis
Tax Policy Center: More on the New Jobs Tax Credit