Steps on the road to prosperity in Arizona

| May 13 2012
Christopher Cook

It’s a simple enough headline: Brewer signs new business tax cuts into law. But it is a very important step in restoring a healthy economic climate in Arizona.

Simply put, business taxes are among the most damaging to an economy.  A recent study from the OECD indicates just how damaging:

This paper investigates the design of tax structures to promote economic growth. It suggests a “tax and growth” ranking of taxes, confirming results from earlier literature but providing a more detailed disaggregation of taxes. Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. Recurrent taxes on immovable property appear to have the least impact. A revenue neutral growth-oriented tax reform would, therefore, be to shift part of the revenue base from income taxes to less distortive taxes such as recurrent taxes on immovable property or consumption. The paper breaks new ground by using data on industrial sectors and individual firms to show how re- designing taxation within each of the broad tax categories could in some cases ensure sizeable efficiency gains. For example, reduced rates of corporate tax for small firms do not seem to enhance growth, and high top marginal rates of personal income tax can reduce productivity growth by reducing entrepreneurial activity. While the paper focuses on how taxes affect growth, it recognises that practical tax reform requires a balance between the aims of efficiency, equity, simplicity and revenue raising.

Business taxes don’t even bring in that much revenue compared with other forms of taxation. At the federal level, corporate taxes only bring in about 5% of revenue. But high corporate taxes do reduce competitiveness and drive corporations to be less profitable, hire fewer people, or leave the country entirely.

Governor Brewer has done the right thing:

Saying it will help Arizona compete for new jobs, Gov. Jan Brewer on Friday signed into law a bill providing tax breaks to business owners and investors.

The centerpiece of the bill, which the Legislature approved last week, is a 25 percent reduction on individual income tax paid on capital gains, the profits made on investments.

The capital gains reduction will be phased in over three years starting in 2013 and applies only to assets purchased in 2012 or later.

The 2012 legislation signed Friday by Brewer was approved a year after the Republican governor and the Republican-led Legislature approved a so-called competitiveness package of tax cuts and other provisions intended to boost economic growth.

The left’s automatic assumption is that these business owners are the greedy rich, and that allowing them to keep more of the money that they have earned will somehow starve the poor. But how does that work, exactly? These business owners have sacrificed their money and time, and have deferred gratification in numerous ways, in order to create successful businesses. They are entrepreneurs. If they are allowed to keep more of their money, are they suddenly going to go from people who invest in growing a business to people who stuff money in a mattress or light cigars with $100 bills?

Yes, according to Democrats:

“It’s irresponsible for tea party lawmakers to hand out tax cuts to the rich while working families can’t get health care coverage for their children,” House Minority Leader Chad Campbell, D-Phoenix, said.

I cannot stand the phrase “working families.” We’re ALL working families. Rich, poor, middle class. If we’re working, and we have a family, we’re working families. Or we’re working individuals. This dichotomy the left likes to create of “the rich” vs. “working families” is divisive and morally wrong.

And it doesn’t work. Allowing people who create and run businesses to keep more of the money they have worked so hard to earn allows them to produce more economic activity, which creates more jobs, which lifts people out of poverty so they don’t need government to take money by force from other people to give them aid. That system has lifted more human beings out of poverty than any other in all of history.

All the Democrats have to offer is trickle-up poverty.

And, as Lady Thatcher so aptly said, “eventually, you run out of other people’s money.” And then what do you do?

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