Let's Target Texas
March 22, 2012Glenn Hamer
Mike Sunnucks’s piece, “Apple’s
Austin move shows Arizona’s obstacles,” should be the starting point on how
Arizona needs to approach its future efforts on job creation.
Texas is our target, not California.
California has lots to offer, like its impressive network of
public and private universities and great natural beauty. But the Golden State
has unfortunately taken on the reputation of a state that is openly hostile to
business.
According to a Milken Institute report, California lost
nearly 80,000 manufacturing
jobs due to onerous regulations and high taxes during a four-year period.
The hemorrhaging is so pronounced that one relocation consultant
has even coined a
new term: California Disinvestment Events.
So while we should continue to roll out the red carpet for
companies looking to leave California, that state should not earn all of our
attention. We need to figure out how to make a compelling case that we are
better than Texas. Texas is turning into the Novak
Djokovic of states, with the
ability to defeat anyone when it comes to battles for capital-intensive jobs.
There are lots of prestigious rankings of the economic
desirability of the 50 states. CEO
Magazine, Forbes, Tax
Foundation, ALEC’s Rich
States, Poor States all offer
their own looks at how states stack up against one another. They all
contain useful information and Arizona should desire a high ranking in each.
But, let’s face it: the perception right now is that Texas is the best
state when it comes to being friendly to employers.
Texas will add four congressional seats in 2012 – no
other state will add more
than two and Arizona will add a single new seat. The second most populous state
in the country boasts an economy that is nearly
the size of Russia’s. (Arizona by contrast has a GDP of about $256 billion,
which is comparable to that of Thailand.)
Since 2009, a whopping 40 percent of new jobs created in the
United States were created
in Texas.
Texas boasts pretty good weather, excellent geography including
access to sea ports and an international border with Mexico and, as Sunnucks
points out, a favorable business climate, including no personal income tax and
a pretty hip capital in Austin. Texas also has a number of top-notch
universities and a diverse, young and capable workforce.
Here’s the good news: we are well on our way to becoming a better
state for business than the reigning champs.
For starters, we made more progress than Texas during the past
couple of years in advancing the state’s competitiveness.
Last year’s competitiveness package - which I submit was the most
important tax reform and economic development piece of legislation passed in
the 50 states last year - reset the game for Arizona thanks to the leadership
of Gov. Jan Brewer and a determined Legislature.
The tax reform pieces are substantial. In a phased-in approach,
the legislation reduces our corporate taxes by 30 percent to a hair under five
percent. Business property taxes are reduced substantially as well, as the
assessment ratio continues its decline from 25 percent less than 10 years ago
to 18 percent by 2016.
For manufacturers who export most of their product, Arizona’s tax
treatment is extraordinarily favorable, putting us in the same company as 21
other states that offer or will soon offer a 100 percent sales factor
apportionment formula. This means companies are allowed to eliminate their
payroll and property presence in the state when calculating their tax liability
and instead factor in only their sales presence in the state.
The Quality Jobs Program and its tax credit of up to $9,000 for
each qualifying new job and the further reduction of the percentage of
scheduled depreciated value that is used to determine tax liability were other
positive elements of the package.
The establishment of the Arizona Commerce Authority and its
economic development tools might have been the icing on the cake. The tools are
working. Consider the 400
new jobs that UnitedHealth
Group is bringing to Tucson with the help of the ACA’s deal-closing fund.
This year we have made further progress in providing those in the
service industry that are selling most of their services out of state a similar
sales factor treatment as manufacturers, thanks to the passage of Senate
Bill 1046.
All of this plus an aggressive push to tamp down
new regulations has resulted
in a powerful job creation cocktail in just a few years.
I am hopeful that we will soon achieve significant improvements in
several areas where we are not as competitive as we need to be. Most
importantly, we need to improve our capital gains profile. Texas does not even
need to worry about this given that it has no income tax and thus no capital
gains tax.
We also need to improve our attraction for startups by going to
the federal and prevailing rate among the states when it comes to net operating
losses. Current state law allows business to carry net operating losses forward
up to five years against future profits. Arizona needs to align its carry
forward policy with the feds and go to 20 years.
There are some areas where we’ll beat Texas every time. We’ve got
an entrepreneurial spirit that can’t be beat, boasting the highest number of innovators
starting new businesses according
to a recent Ewing Marion Kauffman Foundation report.
And I doubt we would ever have to worry about Texas when it comes
to Spring Training. Houston in August gives a sense of why a dry heat beats a
wet one. The quality of life here is second to none.
An ongoing self assessment of how we’re doing compared to other states
is worthwhile, but Texas is the current number 1. But with the right policy
moves, our state is poised to be the future champ.
Glenn Hamer is the president and CEO of the Arizona Chamber of
Commerce and Industry
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