Arizona governor Janet Napolitano headed to California yesterday to sell Arizona as a great place to do business. Top on her list was convincing Intel that a number of potential tax changes will be advantageous to that company as it considers expanding its Arizona operations.
Unfortunately, targeted tax breaks are neither a sure thing nor are they necessarily a bright idea. The tax incentives she's touting, including industry-specific tax breaks and condition-specific R&D tax credits, have not yet been considered by the legislature, let alone approved.
But more problematic is the fact that even if the tax breaks are passed, they are unlikely to benefit the state economy beyond a few favored industries and companies. For instance, one proposed tax credit would be available for companies that engage in research and development in Arizona, but only if they partner with one of the state universities. Such economic tinkering and handouts to favored companies risk steering limited capital into its least efficient uses.
The pathway to a vibrant economy doesn't lie in tax breaks for the favored few. Instead, it lies in a favorable business climate for everyone. In the Goldwater report, Three Paths to Prosperity: An Examination of Proposals for Fundamental Tax Reform, economist Debra Roubik examines three plans that would help all economic sectors thrive.