Economists: faith based supply-side ‘trickle down’ GOP economics is a fraud

I have been telling you this for years. I warned you at the time when “Captain Kool-Aid,” House Speaker Kirk Adams (now an aide to Governor Ducey) and Governor Jan Brewer were crafting Gov. Brewer’s Tinkerbell Tax Plan: just clap your hands and believe! (the essence of faith based supply-side “trickle down” conservative economic policies). See The First Rule of Holes Revisited.

The GOP culture of corruption and faith based supply-side ‘trickle down’ economics is destroying Arizona.

InsanityBeing right doesn’t do much good in a state where Tea-Publicans have adopted an economic theory as an article of religious faith, and religious zealots never question an article of faith — even when all available evidence demonstrates it is false. They see it as a test of their faith, so they have to believe more deeply.

The definition of insanity is “doing the same thing over and over again and expecting different results.”

The Arizona Capitol Times (subscription required) reports, Economists say business tax cuts costing stat hired by Koch Industries to run their Midwest subsidiary formerly known as the state of e $350 million a year:

Corporate tax cuts enacted during the Great Recession amid promises they would stimulate business growth are actually going to leave the state with $350 million less by the time they’re fully implemented.

Legislative budget staffers said Arizona collected $663 million last year in corporate income taxes. And had the tax laws stayed the same, even with economic changes, the state would still bring in $644 million by the 2019 budget year.

But members of the state’s Finance Advisory Committee figures that cuts in the tax rate approved in 2011, coupled with a provision that allows some multi-state corporations to choose an alternate method of computing what they owe, means actual collections that year will be less than $300 million.

The tax cuts were promoted as an incentive to get corporations and their high-paying jobs to move to Arizona.

This is the greatest fraud of the past 40 years.

Sen. Don Shooter, R-Yuma, told Capitol Media Services that the numbers released Wednesday underline what he is now preaching as chairman of the Senate Appropriations Committee.

“Let’s stop tinkering with stuff, including the income side of the equation,” he said.

That comes as Gov. Doug Ducey on Wednesday repeated his 2014 campaign promise to lower taxes every year he is governor.

There already are draft versions of the budget circulating with $30 million set aside for unspecified tax cuts [rather than increased education funding]. Ducey has said exactly who will benefit from those remains to be negotiated.

“I just think we need to calm down a little bit,” Shooter said.

* * *

Shooter, with the benefit of hindsight, has a different view on the cuts.

“I wouldn’t have done it,” he said.

Yeah, you see, that’s the thing. We need state legislators with the education, intelligence, common sense, and experience to know that this “trickle down” economics is bullshit and to not do it. Hindsight is always 20/20.

That [economic]  advantage was supposed to come from two big changes in corporate taxes.

The first took the corporate tax rate, which had been 6.97 percent, and dropped it to where it currently is 5.5 percent. And next year it goes to 4.9 percent.

More complex is how multi-state corporations compute what percentage of their income is attributed to — and taxed by — Arizona.

The law uses a formula: Half is based on the share of sales in the state, with the other half divided equally between the amount of property and the size of the payroll.

Under the law being phased in through next year, multi-state corporations could elect an alternate formula based entirely on what percentage of their sales is made in Arizona.

That option makes no sense for retailers. But it provides a major break to companies that manufacture everything from computer chips to missiles where the number of sales within Arizona is small to non-existent.

Unfortunately for all of us, Doug Ducey, the ice cream man hired by Koch Industries to run their Southwest subsidiary formerly known as the state of Arizona is a true believer in the Church of Trickle-Down.

Ducey on Wednesday said his negotiations with the Legislature over the budget involve “living within our means.”

“In terms of dramatically increasing spending, that’s not going to happen,” he said. And the governor made it clear he intends to demand yet another tax cut this year, just as he vowed when running for office to do every year.

“I really believe that, whenever we can make our state a more attractive place to live, work and do business, we’re doing good for our citizens and for our taxpayers,” Ducey said. “It’s a commitment that I made and it’s a commitment I intend to keep.”

Gubernatorial press aide Daniel Scarpinato said his boss is unwilling to simply leave tax rates where they are.

“Economic development is dynamic,” he said.

“We’re competing with 49 other states,” Scarpinato said. “Every state is looking at ways to be more competitive.”

Simply put, this is reckless and fiscally irresponsible — it is ideologically driven nonsense.

When it comes to corporate income taxes, Arizona appears to already be there.

The Tax Foundation reports that only five states currently have top corporate tax rates less than Arizona’s current 5.5 percent.

Some states like Washington, Nevada and Texas do not have a corporate income tax. But the Tax Foundation says they instead have a “gross receipts tax” which is not directly comparable to income taxes.

And that’s even before the scheduled rate drop next year to 4.9 percent.

Asked if the state can afford another $30 million tax cuts, Scarpinato said his boss sees no reason why not.

“He was elected talking about the need to reform our tax code and drive down taxes,” Scarpinato said of the governor.

Actually, Doug Ducey was elected on the strength of a “dark money” smear campaign against his opponent in the lowest voter turnout election since 1942. More Arizonans either did not vote, or voted for someone other than Doug Ducey, than in any election in recent history. He cannot even claim a plurality of the voters of this state.  So do not even attempt to claim a “mandate” for lowering taxes.

UPDATE: The Republic’s Laurie Roberts adds, Roberts: Tax cuts will cost us $346 million a year:

As we await our leaders’ budget and this year’s inevitable round of tax cuts, ponder this:

Corporate tax cuts – the ones our leaders approved in 2011 to boost the economy – will cost the state $350 million a year once they’re fully in place.

The Joint Legislative Budget Committee on Wednesday reported that Arizona collected $663 million last year in corporate taxes. Had tax laws stayed the same, the state would have collected $654 million in corporate taxes this year. Instead, we’re expected to pull in $557 million, given the tax cuts.

Had tax laws stayed the same, the state would have collected $644 million by fiscal 2019, the year the tax cuts will be fully implemented.

Instead, actual collections that year are expected to be $298 million as a result of the cuts, according to legislative budget analysts. (See page 15.)

Coincidentally, that’s a $346 million annual loss — or enough to cover inflation for the public schools. You know, the money our leaders said they couldn’t provide despite state law because we’re broke?

12 responses to “Economists: faith based supply-side ‘trickle down’ GOP economics is a fraud

  1. John Huppenthal

    No, I won’t cite Rogerson – he did his work on the impact of the welfare state – it just sucks workers out of the economy.

    I will cite Nobel prize winner Ed Prescott who found that tax rates caused the implosion in job creation in Europe and that the Reagan tax rates caused an explosion of job creation in the US. From 1980 to 2007, jobs expanded 50 percent in the United States. In France, they failed to create a single hour of work from 1980 to 2007. Not a single hour. They grew jobs 12 percent but quality declined by more than 12% resulting in fewer hours of work.

    However – this is nations, not states. From 1992, the onset of Arizonas tax cutting march, Arizona ranks 6th in the nation in GDP and job growth. This all despite the stagnation of the last 9 years.

    And, we might be back to 5th, given North Dakota’s huge reliance on oil to overtake and pass us.

    And, given our Black, White and Hispanic student rankings of 1st, 6th and 11th in math (NAEP), we don’t appear to have paid a price for frugality. In fact, there might have been a dividend instead of a price.

  2. 10 to 1 you get an insipid comment to this post from Thuckenthal, citing Roger Rogerson and telling you what a fool you are.

  3. Frances Perkins

    ANY tax cuts in the face of massive State needs are criminal. How about suspending ALL tax credits for 20 years. The corporate tax credits for “donations” that produce private school subsidies are the most obscene. Their suspension easily would supplant the “need ” for Prop 123. The truth is 123 is a crutch for Ducey’s tax cuts and indirectly his court packing. The plaintiffs realized the political calculations. Better to get something than nothing. And Ducey’s rhetoric likely would produce nothing. THERE is ample evidence investments in education produce economic development. There is no evidence marginal tax cuts produce anything but capital flight to tax havens.

    • AZ BlueMeanie

      The problem with your proposal is Prop. 108 (1992) the “Two-Thirds for Taxes” initiative, the GOP’s weapon of mass destruction, that requires a two-thirds majority to pass a tax increase, or to reduce or eliminate tax credits and tax exemptions. I have repeatedly said that the repeal of Prop. 108 is a necessary prerequisite to tax reform and fiscal responsibility. It will not be on the ballot.

  4. For Sure Not Tom

    David Stockman, while he was Ronald Reagan’s budget director, admitted in 1981 that tinkle-down economics was just tax breaks for the rich dressed up in a pretty gown.

    If you give tax breaks to corporations hedge fund managers in New York City take the cash. Arizona sees little benefit.

    If you give tax breaks to very wealthy people they do not spend more, they buy a bigger yacht and stash the rest offshore, where it does not benefit the economy.

    Velocity of money is what the economy needs. Money in the hands of people who will spend it, creating demand.

    The 99% who are not wealthy spend every penny they get. More money in their hands is what drives growth.

    Ducey isn’t trying to stimulate the economy, that’s just the pretty gown he’s putting on the tax breaks for corporations and the wealthy.