by Scot Mussi | Dec 15, 2010 | News and Updates, Uncategorized
It’s rare when a state program ends. But a bit of good news occurred last year in the legislature when Arizona lawmakers refrained from extending the dismal motion picture tax credit (we lobbied aggressively to kill the program). It shouldn’t have been a difficult decision given the facts.
An Arizona Department of Commerce report revealed that Arizona gave out $8.6 million in credits in exchange for $2.3 million in new tax revenue. Whoops.
Arizona isn’t alone in ending this misery, according to Bloomberg Businessweek. In Michigan, jobs created by their film tax credit cost the state $193,000 each, thereby causing the governor-elect to re-examine the program. Film credits have been scaled back in Wisconsin, capped in Rhode Island, and suspended in New Jersey, Iowa and Kansas. Arizona’s will end at the end of the year, according to the magazine.
There is a lesson in the demise and failure of film tax credits. When lawmakers are sworn in, they are not endowed with special insights into foolproof ways to manipulate the economy. If Arizona just had a burgeoning film industry, the notion went, it would be a win-win for everyone. As it turned out, it was a win only for those who received the subsidies. Arizona never became a mini-Hollywood (not enough scripts calling for deserts or mountains?) and taxpayers were left holding the bag.
Because the credits failed to incentivize movie production, lawmakers should ask whether they’re in any position to micromanage some other industry. They aren’t. Incentives bestowed on some are paid for by others. The tax code should not be used this way. Not for manufacturing, not for health care, not for anything.
The best thing lawmakers can do is to minimize distortions in the tax code. Ensure it is fair, neutral, transparent, and has the lowest rates possible. The elimination of Arizona’s film tax credits is the first step in this direction.
by Scot Mussi | Dec 10, 2010 | News and Updates, Uncategorized
Republicans were elected overwhelmingly nationally. There was a backlash against incumbents, special interests, and Obama successfully (in some cases) pursuing his leftward agenda.
Candidates for state legislative offices benefited from the wave, too. In Arizona, there are now only nine Democrats in the Senate. Both Houses have super-majorities. Balancing the budget and fixing the economy are common themes for the newly minted GOP lawmakers.
But when it comes to fixing the economy, the early reports indicate the Republicans might be a little tone deaf to the sentiment of the people who just elected them.
On tax policy, for example, there appears to be some life left in the notion that state policymakers can manipulate the tax code to improve the economy by providing carve outs and incentives for certain businesses. The election should have driven a final nail in that coffin.
The expansion of enterprise zones, where companies who meet certain criteria would receive preferential tax treatment, is bad tax policy. The House plan last year included something similar and GPEC has been the lead driver of this policy. This provision won’t stimulate the economy and we hope it similarly fails to stimulate interest from new lawmakers.
There is simply no sound reason for this policy. Creating a new benefit that only some companies benefit from distorts the tax code for everyone else. Yes, some jobs pay more than others, some industries export more than others, some companies are high-tech, while others are not. But the state should not tip the scales in favor of some activities over others. It is not the job of state leaders to distort the tax code under the pretext that they know what they’re doing. They don’t. My favorite quote on this topic:
“The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence.”
Alan Peters and Peter Fisher, “The Failures of Economic Development Incentives,” Journal of the American Planning Association 70, no. 1 (2004)
These are the policy reasons to oppose carve outs. There are political ones, too. Which constituency do carve outs appeal to? Aside from the beneficiaries of the carve outs, nobody supports these things. Do Republicans really believe they were given super-majorities in both the House and the Senate to bestow special tax favors to certain businesses? Are the Tea Party activists clamoring for special breaks for big business? Of course not.
One lawmaker told me that unless it benefits the guy running the hot dog cart, he’s not voting for it. That’s the right sentiment.
Arizona lawmakers should begin to phase out special carve outs and incentives. The tax code should become flatter with less distortion. To the extent rates can be reduced, they should be reduced for everyone. If they can’t be reduced for everyone, then reductions should be placed on the backburner, or phased in over time.
In short, Republicans should begin to simplify the tax code, not make it more complex. This would prove to be both a policy and political winner.
by Scot Mussi | Dec 1, 2010 | News and Updates, Uncategorized
News Release
FOR IMMEDIATE RELEASE: Monday, November 29, 2010
CONTACT: Steve Voeller: (602) 346-5061
U.S. Supreme Court to Hear Challenge to Matching Funds Provision in Arizona’s Election Law
Arizona Free Enterprise Club’s PAC is petitioner in case
Phoenix, AZ – The U.S. Supreme Court today announced that it would hear legal challenges to the matching funds provision in Arizona’s Clean Elections law.
The Arizona Free Enterprise Club’s Freedom Club PAC is a petitioner in the case, which has been consolidated with a similar challenge from State Representative John McComish.
“The matching funds provision has forced the Club’s PAC to reconsider its support of candidates because we know our participation will result in additional government funds for those candidates’ publicly-funded opponents,” said Steve Voeller, president of the Free Enterprise Club. “This chilling of speech clearly violates the federal constitution.”
“We are thrilled the Supreme Court has decided to settle this matter once and for all.”
The Court is expected to hear arguments in AZ Free Enterprise Club’s PAC v. Ken Bennett in the spring of 2011.
###
The AZFEC is a 501(c)(4) advocacy group not affiliated with any other organization. For more information visit www.azfec.org.
by Scot Mussi | Nov 16, 2010 | News and Updates, Uncategorized
If a rematch between Harry Reid and Sharon Angle were held a week from today, she might actually win, given Sen. Reid’s tin ear when it comes to wasteful spending.
But there is no rematch. He won, she lost, and Reid continues to staunchly defend bringing home the bacon to Nevada; a practice that some of his fellow Democrats are prepared to suspend. Reid’s defense?
“I am not in favor of delegating my constitutional responsibility to the White House.”
What?
Many Americans are aware that Congress passes the nation’s budget bills. More specifically, Congress can – and does – authorize and appropriate funds for a specific program within the administration. Good evening Mr. President and head of Health Services, here’s the brand new health care law we passed and here’s the money allocated to carry it out its specific functions.
Mr. Reid knows this, too, of course.
“I believe, personally, we have a constitutional obligation, a responsibility, to do congressionally directed spending. I do not feel comfortable turning that over to the people downtown.”
I’m not sure why the disconnect, but “congressionally directed spending” is congressionally directed spending. Even with an earmark ban, Congress retains the power to authorize and appropriate money. The budget bills do not suddenly become blank checks handed over to the “people downtown,” (i.e. the White House and her agencies). If so, the next energy appropriations bill could theoretically become Obama’s Cap and Trade bill.
Earmarks, on the other hand, are the ultimate in blank checks. Mr. Reid doesn’t want to go to the trouble of getting his pork authorized and approved by spending committees. Why subject yourself to that when you can just air-drop a little Lake Tahoe restoration (actual Reid earmark) into a spending bill without an up or down vote?
In any event, this debate about earmarks really isn’t about pet projects going away. It’s about unaccountable pet projects going away. If Mr. Reid wanted to “congressionally direct” spending toward Lake Tahoe restoration, he ought to give it a shot. After all, as Majority Leader, the guy still has some clout, yes?
by Scot Mussi | Nov 12, 2010 | News and Updates, Uncategorized
Being a part of a legislative or executive blue-ribbon commission is a thankless and often dreadful job. By definition, a commission’s recommendations reach a consensus . . . a compromise. Countless hours of hard work (usually unpaid), collaboration with colleagues on the other side of the political spectrum, a little give here, and a little take there. And for what? A report that includes tough love recommendations few politicians are willing to stand behind, a report that interest groups love to ends up being hated by both sides, political spectrum and is relegated to a future on a shelf collecting dust (or these days, on a hard drive getting a virus).
President Obama’s fiscal commission co-chairmen just pre-released their report. There has been no vote and rank-and-file members have not yet publicly weighed in. But co-chairmen Simpson and Bowles unveiled a draft that has both conservatives and liberals uneasy (see part of liberal Paul Krugman’s response in the post below).
What I like most about the draft is the acknowledgment that not only does federal spending need drastic reductions, but that the TAX CODE needs to be reformed. Yes, the commission scores their tax reforms as a net tax increase (and there are increases we don’t support, like capital gains and dividend taxes), but I tend to think that the reforms don’t have enough dynamic feedback effect included in their score. If top marginal tax rates on both corporate and personal income were slashed by 26 percent (to a top rate of 26 percent), and were coupled with regulatory restraint by Obama (no more financial system overhauls, health care overhauls and the like), billions of private dollars currently sitting on the sidelines would be freed up. Confidence would perk up. That’s what history tells us, anyway.
In addition to a ban on earmarks, the flattening and lowering of the personal income tax system, and the corporate tax cut, the commission also calls for medical malpractice reform.
You now see why liberals hate this thing.
by Scot Mussi | Nov 11, 2010 | News and Updates, Uncategorized
The federal deficit commission pre-released their report yesterday and we will write more about it later, but the NYT’s Paul Krugman doesn’t like what he sees so far. Krugman has been calling for higher taxes and higher spending to improve the economy and he doesn’t seem to have much room for anyone who disagrees with his analysis – including the commission assembled by Pres. Obama. The commission did address federal taxation, and contrary to what many people thought (that the commission would only focus on tax increases), they actually proposed some pro-growth reforms to the tax code, which included lower rates on capital investment. This doesn’t sit well with Krugman.
I mean, what’s this about? There is no — zero — evidence that income taxes at current rates are an important drag on growth.
What’s “an important drag on growth”? What growth is he talking about, anyway?
As I said, we’ll get into more detail about the commission’s early recommendations, but Krugman’s notion on tax rates reminds me of Bill Gates Sr’s letter to Arthur Laffer where he said, “I would say our country has prospered from using [a progressive tax] system—even at 70% rates to say nothing of 90%.”
Recent Comments