Arizona’s lost decade due to GOP magical thinking and fiscal mismanagement of the state

Screenshot-14While the national economy continues to recover from the Bush Great Recession, Arizona’s economy continues to struggle to recover. How’s that blind faith in supply-side “trickle down” economics, the religion of Tea-Publicans in Arizona, working out for ya? Arizona’s predicted job growth: ‘Stagnant, slow, subpar’:

Economist Aruna Murthy had a few words about the state’s projected job growth Thursday when she made her predictions.

“Stagnant.” “Slow.” “Subpar.”

That’s based on her forecast that Arizona employers will hire just 53,500 new workers all of this year. That means the number of Arizonans working at the end of this year will be just 2.1 percent higher than it was at the beginning of 2014 — the same slow growth rate the state has recorded for the past two years.

Murthy, the director of economic analysis for the state Department of Administration, said the largest growth rate will be in Maricopa and Pinal Counties, where she predicts employment will increase this year by 44,600. But even that picture is hardly rosy: Those two counties added 48,500 workers last year.

And everywhere else is expected to fare worse.

Murthy figures Pima County will add 4,400 workers this year, just a 1.2 percent year-over-year growth.

At this rate, she and her staff predict the state won’t reach its prerecession employment levels until sometime in 2017. And that recovery won’t be across the board.

[The Arizona Republic reports today that 1 in 5 Arizonans likely to move out in next 12 months:

Roughly one in five Arizonans is moving out.

Jobs, school and interest in being closer to family or friends is drawing people away, according to a Gallup Poll released Wednesday.

It shows that 19 percent of adult Arizonans are somewhat to extremely likely to move out of state within the next 12 months. That is the second-highest rate behind Nevada at 20 percent.

But Arizona is still growing. The state’s population was estimated at 6.6 million people in July, up 3.7 percent from three years earlier, according to the U.S. Census Bureau.

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Arizona is also above the national average of 33 percent in the number of people who would move out of state if the could. Of the Arizonans surveyed, 38 percent would move if they could.]

At the same time, Arizonans are earning less now than they were before the recession.

In inflation-adjusted dollars, Arizona per-capita income was $39,819 in 2007, compared with $37,078 in the most recent figures available.

That, in turn, leaves companies unsure of demand and unable to make business investments, Murthy said.

The dim prognosis for manufacturing employment comes despite the fact Gov. Jan Brewer has made a big push to attract these firms to Arizona. Just last month she signed legislation to exempt such firms from having to pay the same state sales taxes on electricity and natural gas that other companies and individuals pay.

That’s on top of previously approved measures specifically aimed at manufacturers, like one that gives them the ability to base their state corporate income tax on what percentage of their products they sell within Arizona. Put another way, a firm that makes items solely for the military can now escape this tax entirely.

This dismal economic forecast follows earlier reporting on the Arizona legislature’s supposedly “balanced” budget that will result in a future budget shortfall by 2017 due to all the tax cuts enacted in recent years out of blind faith in supply-side “trickle down” economics. Lawmakers ‘balance’ budget, cut taxes and go home:

Arizona lawmakers finally finished their annual session Thursday morning and can claim they did the one thing the constitution actually requires of them: adopt a balanced budget.

Sort of.

And then they cut taxes.

The actual spending plan approved by the Legislature and signed by Gov. Jan Brewer has close to $9.2 billion in ongoing spending. These are programs that continue from year to year.

Yet actual ongoing revenues — money the state can count on from various sources year after year — totaled just $8.7 billion.

The only way the budget was “balanced” was with $53 million taken from other accounts, like gasoline taxes and vehicle registration fees normally earmarked for road construction and maintenance, and with a $600 million cash carry-forward, largely money left over after the temporary 1-cent sales tax surcharge that expired last May 31.

That money is going to be gone by the end of the coming fiscal year.

That looming budget hole, however, did not stop lawmakers from cutting taxes in the name of economic development.

Some economists who follow state government closely question the belief that further reductions in what businesses pay are the key to economic growth.

Jim Rounds of Elliott Pollack & Associates said the idea that lower taxes lead to economic growth and greater tax revenues goes only so far.

“I think we’ve done a really good job making ourselves more competitive,” he said. Rounds said any further cuts won’t have the same “bang for the buck.”

Economist Dennis Hoffman, of the W.P. Carey School of Business at Arizona State University, was more succinct.

I don’t think you’re going to get more economic growth with more tax cuts in the state,” he said.

“If tax cuts were the key to prosperity, we would be swimming in a pool of prosperity right now,” Hoffman continued. “We have clearly maximized on the tax-cut train.”

Since Brewer became governor, lawmakers have voted to cut corporate income tax rates by 30 percent. And the full impact of that won’t even hit until 2018, when, according to budget analysts, the net loss to the state will be $270 million a year.

Brewer also has pushed through other special tax treatments for corporations, including various tax credits for research and development — a trend that continued this year.

Lawmakers, at the governor’s behest, agreed that manufacturers and smelters should not have to pay sales taxes on the electricity and natural gas they buy. That move alone cuts $18 million a year.

There also were special tax breaks aimed at the insurance industry and new tax income credits for investors in startups.

Economists who advise the Legislature say that by 2016, revenues will still be $221 million below anticipated expenses. And if that red ink is carried forward into the following year, the state will be close to $480 million in the hole.

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At the pre-recession peak, there were 2.69 million Arizonans employed.

That dropped to 2.37 million by September 2010. And the state, with employment growing at only 1.9 percent a year according to the latest figures, has recovered only about 200,000 of the more than 313,000 jobs lost.

In terms of what it takes to run the state, tax revenues peaked in 2007 at $9.62 billion. But legislative budget analysts figure it will take until 2017 to get back anywhere close to those levels.

Arizona’s lost decade is due to magical thinking, i.e., blind faith in supply-side “trickle down” economics, and GOP fiscal mismanagement in the Arizona legislature.

If you had an employee working for you performing this badly, you would fire them. Well, your elected representatives are your employees — they work for you (despite what some of these prima donnas think). It’s time to fire these Tea-Publicans who have run Arizona into the ground.

9 responses to “Arizona’s lost decade due to GOP magical thinking and fiscal mismanagement of the state

  1. Thucydides

    Ok, 46.5 million on food stamps alone, April 2014.

    • Our family was on food stamps back in the 70s while my dad was working and in law school. No one characterized us as “on welfare”. That description was strictly reserved for households on AFDC, later known as TANF. The recent so-called explosion of “welfare” is due to conservatives defining that to mean anyone getting any public assistance at all, even if they work full time. There are now Republicans claiming that low wage workers who qualify for Medicaid and nothing else are “on welfare”.

  2. Thucydides

    Arizona economic growth has been a function of national economic growth. Roughly 2x. If we can get the feds to grow at the historical rate of 3% and the state to resume its ratio, we are vack in the gravy. One way to get more resources for the state is to change policy at the federal level. These needed policy changes are now clear. The needed policy changes at the state level are far more complex both politically and economically. It is going to be wrenching for both the nation and the state to get back that position we held for 15 years, until april of 2007.

  3. Thucydides

    National labor force participation has not been this low since 1978. This is what the nation needs to do: reduce the max tax rate to 28 percent; reduce the welfare population to 40 million from 50 million and reduce regulation from 90,000 pages to 70,000 pages.

    So exactly what should the state do and what empirical model would suggest that the strategy would be successful?

    • So, in response to a post regarding Arizona’s poor performance compared to other states, you focus exclusively on matters at the national level. Even if you were right, you’d be wrong, because fixing the problems you believe exist at the national level would not improve Arizona’s performance vis-a-vis other states.

      A clear thinker you’re not.

    • Donna Gratehouse

      There are not 50 million people “on welfare”, Thucky.

      • There are indeed more than 50 million people on welfare right now and the supposed 6.3% unemployment rate is a mirage, especially when 800,000 people drop out and stop looking for work altogether. So what should Arizona do? What California has done, which is drive out businesses and families due to excessive tax rates while always giving into public union demands? How about Chicago’s pension problems? People leaving New York?

  4. Frances Perkins

    I argued with one Republican legislator about this tax cut mania that will “magically” create economic development. During the recession every tax credit should have been suspended, but at that point it was about rewarding interests and not about economic development. I said there is essentially no empirical evidence this causes new economic activity. If it was, then every job in America would move to Nevada and South Dakota with no income tax and no corporate income tax, along with all the other tax breaks. But there must be a reason every company has not already moved to those States. But empirical evidence does not drive policy in the Republican legislature, only magic ideology thinking. It is not “cogito, ergo sum”, it is ” credo, propter quod verum est!”

  5. In addition to everything you mentioned, they created a lost decade in education as well, which continues with diminished funding for public schools and monies intended for public schools used for “choice.”
    Arizona policymakers are a dismal failure.