The state of Arizona is in a hole. The deficit for this year is around $800 million and next year estimated to be double that.
So what does the state legislature want to do? Cut business taxes by $400 million
It is said the first rule of getting out of a hole is to quit digging
Guess the folks in Phoenix don’t believe that.
The proposed tax cuts are aimed at stimulating business to spend more money and thus increase tax revenues by the growth in economic activity
Remember “trickle down”?
According to the Star here are some of the tax cuts and tax breaks that are expected to be on Governor Brewer’s desk by Wednesday:
Cutting the corporate income tax rate from just below 6 percent to 4.9 percent, giving Arizona the fifth-lowest rate in the nation.
Allowing some multistate corporations to pay no corporate income taxes at all.
Altering how businesses are assessed for property-tax purposes, potentially reducing their liability by 10 percent.
Creating new state tax credits for firms that create jobs that pay at least the median wage for the county where they are located, up to $3,000 per job for three years.
Permitting companies to write off new equipment purchases faster, reducing their state income taxes.
Increasing the amount of equipment that businesses can exempt from being assessed for property tax purposes.
Creating a new $25 million a year “deal closing” fund to help persuade firms to move to the state.
Arguably most of these tax cuts and breaks make sense if you are in business. I especially have though the property tax on “personal property” really was damaging to business.
Reducing the assesment ratio is also good.
But with the size of the current deficit, all this means right now is steeper cuts are going to have to be made in funding for education, health care and just about everything else.
News story from the Arizona Republic…notice the spin….
by Mary Jo Pitzl and Ginger Rough – Feb. 15, 2011 12:00 AM
The Arizona Republic
Gov. Jan Brewer and lawmakers unveiled a wide-ranging package of tax cuts and incentives on Monday that they believe will usher in a new era of economic prosperity.
Using Arizona’s 99th birthday as a platform, they said a special legislative session this week will map a new course for Arizona’s economy: one that relies more on high-paying, skilled jobs and less on the boom-and-bust cycle of housing growth.
“This is the most historic piece of legislation to be heard by the Legislature in decades,” Brewer said at a news conference.
The wide-ranging Senate Bill 1001 is filled with tax breaks and incentives for businesses large and small. The legislative budget office estimated its cost at $538 million by 2018, when all the tax cuts are phased in. Brewer’s office offered a lower tab, about $400 million.
The proposal comes as Arizona faces its fourth straight year of budget deficits. This year’s gap is estimated at $763 million and a $1.15 billion deficit in fiscal 2012, according to Brewer’s office.
Brewer’s advisors acknowledged that there is no guarantee the changes would yield enough new investment and jobs to offset the anticipated revenue loss. “I can’t answer the question,” said John Arnold, director of the Governor’s Office of Strategic Planning and Budgeting.
Still, Arnold and other proponents maintain the moves are necessary to boost the economy.
They said lower tax rates will attract new business investments, making up for the lost revenue. Arizona had drawn national and international attention not for its tax structure but for social policies that some said paint an unwelcoming image of the state.
House Speaker Kirk Adams, who introduced a similar tax bill last year, acknowledged the state needs to be concerned with its reputation but said a hospitable business climate would trump any negative images.
As Brewer and legislative leaders unveiled their tax plan, protesters gathered outside the Capitol to object to a bill that would require hospitals to check the citizenship of patients before admitting them for non-emergency care.
Adams, R-Mesa, said businesses will look at balance sheets and financial decisions when making location decisions.
“It’s a business decision, not an image decision,” he said.
Democrats, who were not consulted as Brewer, Adams and Senate President Russell Pearce worked on the 200-page bill, chafed at the holes they believe the tax cuts would punch in the state budget.
“There are corporate tax cuts in this bill that can’t be paid for,” said House Minority Leader Chad Campbell, D-Phoenix.
The bill faces relatively smooth sailing, since it has support of the GOP leadership and Brewer and Republicans have more than enough votes to pass it without Democrats.
A four-year phase-down of the corporate income tax, at a cumulative cost of $220 million, is the biggest-ticket item in the bill.
Arizona is in the middle of the pack on corporate income tax; a 2-percentage-point cut would give it the fifth-lowest rate in the nation.
Beginning Jan. 1, 2014, the 6.968 percent tax would reduce by 0.5 percentage points a year, settling at 4.9 percent in 2018.
Adams said changes to the business personal property tax should spur new investment next year.
The bill proposes to increase the exemption for business equipment purchased in 2012, raising it to $79,000 from $66,000. It would be adjusted annually.
“For small businesses, they can write off equipment purchases faster, which could be an incentive to buy more,” Adams said.
Coupled with other changes to the tax businesses pay on equipment, such as accelerating the equipment-depreciation schedule and reducing assessment rates, proponents feel the bill would give business an immediate, competitive edge.
Tim Lawless, president of the Arizona chapter of the National Association of Industrial and Office Properties, called the proposals a “game changer.”
“The initiative to reduce business property taxes will soon move the needle when firms again make job expansion and relocation decisions,” he said.
Most of the tax breaks would not kick in until July 2013, after the temporary, 1-cent-per-dollar sales-tax increase Brewer championed expires.
She said the delay would keep faith with the voters, who overwhelmingly approved the tax to protect education, health-care and public-safety spending.
“I assured them at the time that none of that money would be used for tax cuts,” Brewer said.
The package includes the abolition of the state Department of Commerce and the creation of the Arizona Commerce Authority, a public-private partnership designed to attract and retain jobs in Arizona.
The private businessmen who would run the authority lauded Brewer for relinquishing some of her power as governor by agreeing to share control with lawmakers and the private sector.
The Commerce Department is part of the executive branch and controlled by the governor.
Don Cardon, president and CEO of the authority, said the business-oriented group would operate with transparency and openness.
Among other things, it would administer the annual $25 million “deal-closing fund” that is part of the bill. Other aspects of SB 1001 include:
– Termination of the enterprise-zone program, which gave tax breaks to selected businesses. In its place, companies that create new jobs that pay above the median wage in a county, and that cover at least 65 percent of employee health-care costs, will receive a $9,000 tax credit for each new job. Total credits would be capped at $30 million a year.
– Reauthorization of the job-training program, which lapsed because of budget cuts.
– An increase in the “sales factor,” which exempts companies from the income tax for that portion of its sales made out of state. The idea is to incentivize businesses that export goods and materials. The sales factor, which currently exempts 80 percent of the sales, would increase over five years to 100 percent, at a cost Brewer’s office estimates at $95 million.
– Lowering the rate at which various business property-tax categories are assessed. This would normally cause residential property taxes to rise. Lawmakers say they would protect homeowners from an increase by allowing a state subsidy to continue for primary residences but ending it for rental properties. This, they believe, would raise enough money to offset the lower assessments for business properties.
– Elimination of the capital-gains tax on investments in qualified small businesses. However, the program would be capped at $20 million over its five-year life.
– Expansion of the research-and-development tax credit by 10 percent for companies that collaborate with university researchers.