Suppose the state of Arizona gave taxpayer money directly to companies in certain industries as an incentive to locate here, with payments based on how much workers were paid and whether health benefits were offered.
Tax revenues would have to be raised or diverted to pay for this program. Government bureaucracy would be created to make sure businesses comply with the program’s requirements. Consequently, the economy would be partially transformed according to the preferences of government officials.
Now, suppose the state were to offer tax breaks (instead of direct payments) to those same companies based on the same conditions. Government would grow in exactly the same way as with a direct subsidy: more bureaucracy would be needed to make sure the targeted companies comply with the rules for receiving the special tax breaks. Thousands of businesses and regular people not eligible for special treatment likely would see their tax burden get heavier over time.
This almost happened during the 2010 legislative session with House Bill 2250, a measure sold as a jobs bill. It did happen in 2009 with the passage of Senate Bill 1403, a bill designed to attract solar industries to the state with special tax advantages.
With Arizona’s unemployment rate hovering near 10 percent, there will undoubtedly be lots of talk about spurring economic growth in 2011. Be wary. Some plans could lead to more spending and higher taxes, at least for those not in the chosen industries.
Economic stimulus starts with humble government. Low taxes for all businesses mean low taxes on job creation. Reduced regulation frees private resources for job creation. And making government efficient and less costly creates stability, a key ingredient for private sector job creation. Arizona policymakers should seize this opportunity and make economic development through lower taxes for all businesses their goal for 2011.
Dr. Byron Schlomach is an economist and director of the Center for Economic Prosperity at the Goldwater Institute.
Goldwater Institute: How to Restructure Arizona’s Tax Code: A Smarter, Flatter Tax Plan to Create Jobs
Goldwater Institute: Burdensome Barriers: How Excessive Regulations Impede Entrepreneurship in Arizona
Arizona Legislature: SB 1403
Arizona Legislature: HB 2250