What if Arizona eliminated tax credits for businesses?

Whether they're good policy or not, two experts say yanking them would be disastrous
Saturday, May 17, 2014


Political debates on improving the economy often focus on tax policy. Among the most disputed: tax credits to lure new business.

We asked two experts: What if Arizona eliminated tax credits for businesses?


Would eliminating tax credits for businesses impact Arizona's economy? Absolutely. Would it be a knee-jerk reaction? Yes. Eliminating tax credits wouldn't kill the economy, but the cost would be high.

Recent political rhetoric would have Arizonans believe challenges with our K-12 system, health care and transportation infrastructure could be solved by eliminating tax credits. Truthfully, the answers to complicated policy questions are never as cut and dried as political sound bites make it seem.

We should undertake a thoughtful and periodic review of tax credits. Economic conditions, circumstances and priorities change. A review might not yield a political "ROI," but will ensure public dollars are put to their highest and best use.

If such a review were conducted today, policy makers would find there are plenty of successful tax credits in statute. The Renewable Energy Tax Credit creates jobs while enhancing our position as the center for the production and use of renewable energy products. Last year, the Research and Development Tax Credit enabled 55 companies to invest in innovations across several industries. And the Quality Jobs Tax Credit supported 1,028 new high-wage jobs and maintained 343 more in the last year.

When crafted and utilized correctly, tax credits are powerful tools to create quality jobs and stimulate innovation. Outside of the political rhetoric, tax credits provide a means for policy makers to plant the seed for meaningful cultural and economic change.

It's vital that Arizona thoughtfully promote tax policies that stimulate our economy, create quality jobs and provide a solid return on investment to the citizens of our state.

Todd Sanders is president and CEO of Greater Phoenix Chamber of Commerce.



The Arizona Tax Research Association has historically opposed most legislation creating business tax credits, particularly when targeted to a single industry or business. In fact, if not for ATRA's efforts at the Capitol, there would be countless more on the books today. ATRA believes that fair, equitable and broad-based tax policies do more to promote economic growth than targeted tax credits.
In addition to picking winners and losers in the private economy, tax credits also create other policy challenges. Regardless of the state's fiscal condition, these credits become the "first draw" on the state's treasury. As a result, these "expenditures" never compete in the budget process against other priorities.

However, the wholesale elimination of the business tax credits would be a far worse policy decision than the original action to create them. The critical time to debate the legitimacy of tax credits and their potential impact on economic development is before they become a part of the tax code.

Stable and predictable tax environments are critical to business recruitment and retention. The only thing worse than granting dubious tax credits is repealing them after businesses have made major investment decisions based on those tax considerations. Developing a national reputation for such bait-and-switch tactics would be disastrous.

State policymakers created a standing committee to periodically review the existing credits and analyze whether they have accomplished their original goals. Certainly, those that fail that test should be put on the chopping block.

Kevin McCarthy is president of Arizona Tax Research Association.