Blame it on the business tax

ARIZONA MUST REVERSE POLICIES THAT DRAW PEOPLE BUT FEW HIGH-PAYING JOBS

By Duff C. Hearon and David J. Cohen
SPECIAL TO THE ARIZONA DAILY STAR

On May 13, the Arizona Daily Star quoted the U.S. Census Bureau Report's description of Arizona as having a relative bargain level of taxation on its citizens.

In all, Arizona's taxes and fees collected totaled $1,593 for every man, woman and child for the period from July 1, 2000, to June 30, 2001.

This ranked Arizona as being the ninth-lowest state for the amount of per capita taxation on its people.

This would be good news, except for one sad fact: According to the Arizona Tax Research Association, Arizona is the third-highest business property taxation state in the country.

Also, its corporate tax rate is among the very highest in the nation.

The public policy implications are apparent. While our taxation policy attracts people to Arizona, it does not stimulate economic development for people to make a good living in Arizona or to have a high standard of living in Arizona.

This policy of relative high taxation on businesses over the past decades has led Arizona to attract a lot of people, but few high-paying jobs.

Statistics may say we are a low tax state, but we doubt our citizens feel they are subject to relatively low taxation.

There is good reason for this - we don't make enough to feel well-off.

In 1995, the Greater Tucson Economic Council first learned how serious the problem was when a semi-conductor company initially placed Tucson as its No. 1 site choice for a $500 million plant that would have brought nearly 1,000 high paying jobs to our community.

The company came to Tucson and reviewed "the numbers."

At the end of the review, at a dinner with Tucson leaders, the head of the company stated that due to its high taxes, our community was no longer on its site list.

This scenario has been followed by a number of other capital-intensive companies that have looked at Tucson and passed it over once they found our relative tax costs for doing business.

In fact, one national site selector has stated that he will no longer show Arizona to capital-intensive companies until we correct this problem.

In the wake of the meeting with the semiconductor company, GTEC made an intensive study of business taxation in our state.

It was during this review that we found that we were one of the highest business taxation states in the nation.

The tax that makes Arizona such a high business tax state is the business property tax (both the business "personal" property tax and the business real property tax). Note: business "personal" property is anything used for business that is not real estate, like business equipment, such as tools, dies, lathes, computers and software.

With help from the University of Arizona, we learned that, overall, the state of Arizona was a very low tax state.

It then began to sink in that Arizona's history was one of high taxation on business, with relative low taxation at the individual level.

Our research showed that even the states of Massachusetts (so called "Taxachusetts") and Minnesota were substantially below the business taxation rate of Arizona.

Historically, this high business taxation is rooted in our high taxation of mines, railroads, utilities and other companies that are "captive industries," i.e., they can't leave because the business is captive to the natural resources or physical location of our state.

Now, we are in a new economy where companies are not captive.

In the new, global, knowledge-based economy, companies may locate anywhere. They may, and do, move rapidly to where they can be more competitive.

The raw material of the new economy is knowledge, not natural resources. Knowledge goes in and out of the office or plant as easily as the people go in and out of its front door.

Knowledge, which is very mobile, is the raw material for which there is international competition.

If Arizona wants to be a key player in the new, global, knowledge-based economy, there must be a complete revamping of the way business is taxed.

We must throw out the old, antiquated method of taxation that was born out of natural resource and industrial taxation policies.

We must embrace taxation policies that recognize the value of attracting, retaining and growing knowledge-based companies.

We must reverse the old tax policies that "attract bodies to Arizona" but not the jobs that will afford our citizens a good standard of living.

We must reverse the policies that make our citizens feel overtaxed, even with our relatively low per-capita taxation.

Otherwise, our citizens will continue to feel heavily taxed, because we have not received the benefit of the better jobs that would make it easier for us to pay taxes.

At the upcoming July 17 State Economic Summit, GTEC is going to call on the Legislature to establish a Tax Realignment Commission to address this problem.

The model for this commission is the Base Realignment Commission, which has been successful at the national level in shutting down surplus military bases by avoiding special interest politics.

This blue ribbon tax realignment commission will be established to review Arizona's tax code in its entirety.

The commission will be charged with making a recommendation for a new, balanced tax code to unleash economic development in our state.

The Legislature will then vote yea or nay on the proposal without amendment.

We believe this is the only way for Arizona to join the primary sites of the new global, knowledge-based economy in time to not be permanently left behind.

We call on our Legislature to establish this commission and to move forward to a more prosperous future.