An Inconvenient Truth
March 31, 2010March 31, 2010
by Mark Dobbins
by Mark Dobbins
On Sunday I read with amazement Bob Robb's commentary that "There isn't anything fundamentally wrong with Arizona's tax system." As chairman of the Arizona Manufacturers Council (AMC), I have to heartily disagree. Our members compete in a global marketplace and the cost of doing business in Arizona is still too high to make us truly competitive as an industry sector. Unfortunately, competitiveness will not come from Washington, D.C. Therefore, it must come from our legislative leaders at the State Capitol.
Our Tax System Works Fine if You Like Low-Wage Jobs
The inconvenient truth is that our tax system promotes a low-wage economy and that our current fiscal struggles are a result of this policy. The combination of low homeowner property taxes and income taxes combined with high business property and income taxes has made Arizona highly competitive for low wage jobs that don't require capital investment. I guess you could say that our tax system works just fine if you simply want to recruit low-wage jobs and compete on the fact that we have low-cost housing and sunshine.
The end result of which is that AHCCCS rolls will continue to grow as our low-wage economy continues to bottom out. It doesn't work just fine. In fact, Arizona's tax structure is fundamentally flawed if a company needs to invest significant capital and requires a highly skilled and well-compensated/skilled workforce.
As a result of the recent federal health care reform legislation, the burden on the taxpayer will only continue to grow if we don't bring in more high-wage jobs. President Obama's legislation requires even more state subsidies for low wage Arizonans' healthcare and at the same time creates new obligations for employers to provide employee health care. With these new federal mandates, it is clear that we can't afford the burden of more low-paying jobs where taxpayers will be footing the bill. In general, a low-wage workforce requires a high level of public services even when times are good. But these jobs are so economically fragile that when the economy slows, their burden on the economy and the state's fiscal health can become unbearable. The solution is not to repeat this failed approach.
Arizona's fiscal crisis is born out of the state's miscalculation that Arizona's pre-recession boom reflected real, sustainable economic strength. While we should have reformed our tax code when the times where good, it is imperative that we do it now. Arizona's high business property tax rates and uncompetitive corporate income tax rates are stifling Arizona's recovery.
And while it is easy to read the state's balance sheet and be nervous about future tax reductions, what is invisible now- but will be deeply felt in the years to come - is all of the lost economic opportunity that Arizona is experiencing. When manufacturers expand, they commonly bypass their Arizona facility for more competitive states or countries. This is not front page news, but it is the silent killer of our state's fiscal health. Arizona is rarely a finalist for a new facility or expansion of existing facilities unless we have created specialized incentives for that industry. This must change.
We Need Other People's Money (And I am not Talking About Tax Money)
I like Speaker Adams' approach of focusing on base industries. Base industries sell products and services outside of Arizona, and one of the things Arizona needs is new capital and income from across the globe. The real value of base industries is that they are a net positive to the Arizona economy. The challenge is that they operate in a highly competitive environment. If Arizona really wants to compete, we must start by making the tax environment competitive for these industries.
Risk of Change vs. Certainty of Doing More of the Same
Bob Robb seems to see tax reform as a luxury item we cannot afford. What he fails to see is that it is far riskier to merely rely on the hope that our fiscal health will improve and continue do nothing actively to make Arizona more competitive. This do-nothing approach is a recipe for failure. If we don't create the conditions needed for a more stable, post-housing boom economy, then we will persist in our struggle to provide basic services from an ever-shrinking low-wage tax base. It would be far better to make Arizona competitive for manufacturing than to keep betting on a policy of high business taxes - a policy that has already been tested and has failed.
Mark Dobbins is chairman of the Arizona Manufacturers Council and vice chair of the Arizona Chamber of Commerce and Industry. Mr. Dobbins also serves as a board director for the National Association of Manufacturers in Washington, D.C.
The Arizona Manufacturers Council within the Arizona Chamber is the state affiliate of the National Association of Manufacturers (NAM). For more on manufacturing and NAM, visit http://www.nam.org/.
The Arizona Chamber of Commerce and Industry is committed to advancing Arizona's competitive position in the global economy by advocating free-market policies that stimulate economic growth and prosperity for all Arizonans. http://www.azchamber.com/.
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