by Scot Mussi | Sep 14, 2010 | News and Updates, Uncategorized
The Center on Budget and Policy Priorities (CBPP) released a paper today saying that corporate income tax cuts don’t matter much to a state’s economy. We hear the same thing all the time: that taxes don’t really matter except when they do. For example, industrial policy proponents, or those who want only certain jobs and industries to thrive, often turn to corporate tax credits to achieve their ends. Case in point: in 2009, in order to lure renewable energy manufacturers to Arizona, lawmakers approved a five-year, $350 million package of tax credits to qualifying companies.
The problem with these credits, which Republicans passed by a wide margin, is that they must be subsidized by every other taxpayer. Across-the-board rate cuts, however, such as a reduction in the corporate income tax rate that the CBPP discredits, apply to everyone. In a free society, the tax code should be neutral on what kind of business you’re in. The state shouldn’t pick winners and losers. So, while we agree that corporate income tax cuts don’t pay for themselves immediately and should be accompanied by spending reductions, it doesn’t mean that high rates (like in AZ) should be left alone.
Furthermore, Arizona taxpayers could stand a bit of relief. In the last two years alone, taxes have skyrocketed. Residential and business property taxes have increased $250 million and the statewide sales tax rate just jumped 18 percent. We need some downward pressure on taxes, and the corporate income tax is a place to start.
While we disagree with much of the CBPP paper, they do make some valid recommendations. For example, a focus on the “principles of good tax policy and sound management of core public responsibilities.” They also argue that states should “examine existing economic development tax incentives for effectiveness — and cost-effectiveness— at regular intervals.”
On that, we couldn’t agree more.
by Scot Mussi | Sep 9, 2010 | News and Updates, Uncategorized
New York Times columnist Paul Krugman has a September 7 blog post arguing why additional government spending is arguably better than tax cuts to stimulate economic growth. I have actually never seen Krugman argue a case where tax cuts are preferred, but that’s not the point. Here is Krugman’s example:
So suppose we’re going to put $50 billion of resources that would otherwise be idle to work. Is it better to use them to produce public goods like improved roads, or private goods like more consumer durables? That’s not at all obvious — and anyone who tells you that basic economics settles the question, that is says that devoting more resources to production of private goods is better, doesn’t understand Econ 101.
$50 billion of resources that would otherwise be idle? What does he mean, idle? Money is never idle. It is always in use. Money the U.S. borrows to fund stimulus projects is money taken from somewhere else (China usually) and redirected. Krugman knows this, of course, but he doesn’t address the major difference between government spending vs. private sector spending. It’s the known vs. the unknown. It is relatively easy to track $50 billion in spending projects. Whether roads, bridges, railways, or whatever, we can know exactly where the $50 billion will be spent.
But leave $50 billion in the hands of entrepreneurs and try to predict what will happen.
If you want government to drive the economy, move. If you want the private sector to drive it, we need to get government (and her obstacles) out of the way.
by Scot Mussi | Sep 7, 2010 | News and Updates, Uncategorized
Education Funding
K-12 M&O only
All funding sources (state, local, federal)
Source: JLBC
2001 $3,899,678,400
2002 $4,437,848,500 +12.8%
2003 $4,749,655,600 +8%
2004 $5,076,776,500 +6.2%
2005 $5,397,481,900 +5.8%
2006 $5,825,724,000 +7.4%
2007 $6,416,123,000 +10.3%
2008 $6,702,879,600 +4.6%
2009 $6,575,512,200 (1.4%)
2010 $7,001,179,100 +6%
Total Increase is 79%
by Scot Mussi | Sep 7, 2010 | News and Updates, Uncategorized
The Goldwater Institute published a smart piece this morning highlighting the importance of two November ballot initiatives that need to pass in order to prevent an even bigger budget hole. You can read it here.
Propositions 301 and 302 would take approximately $450 million from two programs previously approved by voters. As the Institute points out, the legislature has already counted those funds as part of the 2011 budget. If one or both of the initiatives fail, policymakers will need to make up those funds. How? Byron Scholmach, the author of the Goldwater piece, argues that additional cuts – most notably from K-12 – will have to be made. We agree that should be the first place to cut. Thanks to federal stimulus dollars, K-12 has largely been exempt from the approximate $1.1 billion in real budget reductions that have already taken place. While other agencies saw real reductions, K-12 funding from all sources (state, local and federal) reached its high point in 2010 at $7 billion. And that was a 6 percent increase from 2009. In other words, any reductions in K-12 have been more than made up by other funding sources.
So, while Schlomach is correct to argue that cuts to K-12 (and the other exempt agency: health and welfare) need to occur if Props 301 and 302 fail, there is another option that lawmakers and interest groups will look at: an income tax increase.
Since the collapse of state revenues, liberal policymakers have had their eye on raising income taxes 10 percent on all brackets. This essentially reverses the 2006 10 percent income tax cut spearheaded by the Free Enterprise Club. Never mind that raising taxes in a recession is a bad idea (Gov. Brewer did it twice in the last year with property and sales tax hikes), and never mind that even left-leaning economists in Washington, DC are arguing to extend the Bush tax cuts, lest a double-dip recession becomes more likely. While intuitively counter-productive to sound politics, tax increases in Arizona seem to be an easier path for many lawmakers than taking on the K-12 lobby.
by Scot Mussi | Aug 10, 2010 | News and Updates, Uncategorized
The AZ Corporation Commission is meddling in the marketplace again and the Arizona Republic gives them a pat on the back.
In a recent editorial, “High Standards Will Save Us Millions,” the Republic argues that if consumers demand less energy, then our energy bills will be lower. In other words, if you spend less, you won’t spend as much. Thanks.
In support of the Arizona Corporation Commission’s recent 5-0 vote to require power companies to “achieve energy savings of 22 percent by 2020,” the editorial states:
Customers will save hundreds of millions of dollars as power companies avoid enormous capital expenses. Lower demand will reduce, and even eliminate, the need for new generating plants and transmission lines.
The piece argues that if customers take advantage of federal cash incentives (is this free money from the National Grants Conferences?) to purchase appliances or insulation, then they’ll save money on their electric bills. And looking down the road, the paper writes, “Future homes and businesses will likely be built to minimize power consumption.” And we thought low-flow toilets were bad; can’t wait to see “minimal power homes.”
I’m sure those homes will be cheap, too, like today’s energy efficient cars. The federal government has to bribe consumers $7,500 each to buy a Chevy Volt (60% of which is owned by the government), and even then, it will take more than 10 years of gas savings to recoup the premium on the four-seat hatchback.
But the kicker in the Republic’s editorial is here:
The one challenge is creating the right rate structure so power companies don’t take a financial hit for getting their customers to use less electricity. . .
. . . The Corporation Commission has been working on the issue and can certainly come up with a fair solution.
But I thought “customers will save hundreds of millions of dollars.” Where will those millions come from if they don’t come from the very companies from which we buy electricity?
You can be sure that to maintain the “right rate structure” any savings consumers would realize from a decrease in demand from electricity would be eaten up by being forced to further subsidize renewable energy. So while we might save millions in electricity consumption, we’ll spend on other sources of energy.
Why else would the newspaper be concerned about power companies taking a “financial hit” if people use less electricity? Because there would be less capital available to subsidize expensive alternative energy sources. If the true goal was a reduction in the demand for electricity, the paper wouldn’t worry about the financial hit to APS or TEP. They’d simply adjust. After all, the Republic has over the years argued for higher taxes on tobacco without worrying about the financial hit befalling tobacco companies. Are RJ Reynolds shareholders less important than Pinnacle West shareholders?
The “fair solution” being considered by the Corporation Commission should frighten anyone paying attention to the commission. The Corporation Commission has already instituted a rate hike to pay for the commission’s mandate that power companies obtain more renewable energy. The Republic also endorsed an increase in the statewide property tax, which nailed the state’s largest property taxpayer Pinnacle West (a direct financial hit to their bottom line).
This is the problem with government do-gooders. Not only is it ripe with hypocrisy, but there’s seldom regard for the eventual unintended (and often expensive) consequences. So what if the Chevy Volt has to be subsidized by a federal government with a $1.5 trillion budget deficit. Who cares if property taxes go up or if Arizona ratepayers have to pay more for solar? As long as solar panels and batteries displace nuclear and gasoline, what’s the big deal?
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