During Governor Ducey’s inaugural address in 2015, he indicated that he would not support higher taxes with: “prosperity moves, and as taxes go up, it moves away. Gone as well are jobs, people and companies that found a better welcome someplace else.” Likewise, during his 2016 State of the State address, he bragged about lowering taxes and assured Arizonans that he will “lower taxes this year. Next year. And the year after.” Yes, he has been consistent about his promise to lower taxes and even to do away with the state income tax. He obviously subscribes to the GOP mantra of supply-side (some call it trickle-down) economics.
The basic theory of supply side economics is that marginal tax rates and less government regulation will help business expand and create more jobs. The Laffer Curve, named after Arthur Laffer, is a central theory of this philosophy and posits that lowering tax rates generates more economic activity eventually leading to more tax revenue. Proponents of this philosophy include the Koch-brothers-financed American Legislative Exchange Council (ALEC), Americans for Prosperity, and the Wall Street Journal’s editorial board. They claim that the nine states without personal income taxes are outperforming the rest of the states and that their success can be easily replicated in those states that abandon their income tax. The non-partisan Institute on Taxation and Economic Policy (ITEP) however, says that Laffer focused on “blunt aggregate measure of economic growth” to support his contention. The truth says ITEP, is that states with personal income tax, even those with the highest rates, are experiencing as good, or better, economic conditions than those without. Still, there are plenty of examples of governors who insist on leading their states down the proverbial rabbit hole.
Take Governor Sam Brownback for example. When he took the reins in Kansas, he dropped the top income-tax rate by 25%, lowered sales taxes and created a huge exemption for business owners filing taxes as individuals. Now, five years after doubling down, his state lags in job creation, tax revenue is far short of expectations and bond and credit ratings have been downgraded.
In Oklahoma, Governor Mary Fallin and the GOP-led Legislature enacted a quarter-point reduction in the top income tax rate two years ago and corporate tax breaks when oil crude prices were riding high. Oklahoma’s Republican Treasurer Ken Miller, who advocates for revenue-neutral tax cuts, blamed his GOP colleagues for the now “self-inflicted” crisis. Miller said: “Common sense dictates that until the state proves it can live within its means, it really should stop reducing them, yet some ‘thinkers’ continue to advocate eliminating the state income tax – even arguing that the state’s largest funding source and be vanished without a replacement and still fund needed teacher pay raises.” To Arizonans I ask: “sound familiar?”
In Wisconsin, Governor Walker enacted several permanent tax cuts just as the national recession ended and state revenues began to climb. His speech this year to ALEC was all about how his “big, bold reforms took the power out of the hands of big government special interests.” What he didn’t say is that his reforms produced only about half of the jobs he promised and resulted in delayed debt payments and deep cuts to education to balance the budget.
In North Carolina, with all three branches of government now securely under GOP control, money saved from cutting safety net programs wasn’t reinvested into education, job training or infrastructure, but given to the wealthy and corporations in the form of tax breaks. In September, the NC legislature signed a budget into law that provides $400 million in income tax cuts to be offset by taxes on repair, installation and maintenance services. Alexandra Sirota, who studies tax policy for the NC Justice Center said the affect of the lower taxes “is a huge revenue loser” and that “the revenue losses aren’t fully accounted for in the next few years.”
At the root of it all are ALEC’s questionable economic and fiscal assumptions and faulty analysis. Specifically, these policies include deep cuts in income taxes, particularly for affluent households and corporations; a repeal of state income and estate taxes; and a shift in state revenues from graduated-rate income taxes to sales taxes that are much higher than what exist today. They also include the end of various state-based tax credits for low-income working families; a Taxpayer Bill of Rights (TABOR) that would impose rigid constitutional limits on state revenues and spending; requirements that state legislatures garner two-thirds or other “super-majority” votes to raise any taxes or fees; and other mechanisms to reduce the funds available to finance public services. ALEC also pushes the repeal of state personal and corporate income taxes, which typically provide one-third to one-half of a state’s funding for schools, health care and other services. Finally, ALEC and its supporters fail to acknowledge that public services such as education or infrastructure are important to a state’s long-term prosperity.
Mainstream economic research though, shows that state taxes average less than one percent of a business’ total costs. Extensive economic research indicates that tax-funded public services like education, health, transportation, and public safety are more important for attracting businesses and jobs. In fact, Paul O’Neill, former CEO of Alcoa and President George W. Bush’s first Secretary of Treasury said: “[As a businessman] I never made an investment decision based on the Tax Code…[I]f you are giving money away I will take it. If you want to give me inducements for something I am going to do anyway, I will take it. But good business people do not do things because of inducements, they do it because they can see that they are going to be able to earn the cost of capital out of their own intelligence and organization of resources.” Robert Ady, of Ady International has assisted in countless business site locations. He says that “subsidies cannot make a bad place good.” Good places are competitive because their long-term business basics (labor, materials, marketing, overhead, and transportation) are solid. As Greg LeRoy, founder and director of Good Jobs First, said in his book The Great American Jobs Scam, “any subsidies are icing on the cake, but the cake is already baked.”
Yet, Governor Ducey insists on following the ALEC playbook with his plan to eliminate state income tax. During his gubernatorial campaign, he promised not to postpone a $225 million corporate tax cut to be phased in over three years. To the Arizona Tax Research Association, Ducey bragged about signing legislation to index the state’s income tax brackets ensuring salary increases that don’t outpace inflation don’t bump earners into higher tax brackets. Ducey claimed it was “an important first step in our mission to reduce income taxes in the State of Arizona every year.”
Stay tuned for the second half of this post in which I’ll explain why I claim Governor Ducey’s promise to lower taxes is a lie. Small spoiler alert…he may be committed to reducing INCOME taxes, but there is WAY more to this story.
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There is no cherry picking. In 1980, the top 1% was an adjusted gross income of $80,000. Adjusted for inflation, that is $240,000 in 2008. This group paid 100 billion in taxes in 1980 and 500 billion in 2008, again adjusted for inflation. This is a spectacular success story. The 500 billion was at a much lower tax rate, validating the central thesis of supply side economics.
500 billion isn’t a trickle, its a gusher.
Mainstream economists say this didn’t happen and devote hundreds of pages of sophistry to the effort. Plainly, it did.
Liberals are trapped in Marxs dictum that history is the struggle between the oppressed and the oppressor. Reflexively, they have to name the 1% as oppressors and build a false story.
The truth is that we have two morons running for president. Trump and Sanders. And, .
.
them they are doing well and as a result, the stock market is plummetting. They both would destroy our economic engine in different ways. Trump cwould start a trade war and Sanders would both start a trade war and acelerate the destruction of our job creators. Pick your poisonvv.
Tax rates are too high, people are spending too much time time with their tax attorneys getting reduced.
95,000 pages of inefficient federal regulations are too much not leaving small businesses enough time to actually make a profit and hire employees.9 Obama are regulations only have cost 2 million jobs.
The welfare state is too comfortable slowing the pace at which people return to the job market. Permanent disability alone has swalloed 4 million people relative to the 1980s.
Our only economic driver left is the tax exempt nature of capital gains. Companies like Bershire Hathaway and Amazon are essentially tax exempt. Warren Buffet has earned over 50 billion without paying a penny of tax. His company pays no dividends which are tax, distributing their wealth as a capital gain which, with the help of a tax lawyer is tax free.
Settle down John, you’re nearly incoherent.
You misunderstand what the “1%” actually means, it’s just a slogan, it’s not the actual number.
The actual number of concern is the top 1% of the top 1%, the folks making a billion a year or more and not paying any taxes and not adding any value to the country because they’ve gamed the system for decades.
Saying the 1% is just easier than saying the .001%. And this is where the scam in your argument is exposed.
Yes, the top 1% are mostly still on the payroll and pay taxes, the top 1% of the top 1% do not. They extract wealth.
Those are the folks we’re talking about, I suspect you already knew this, and this is why I state without hesitation that you are cherry picking your facts.
Cherry picking facts to support your argument is a very bad way to run a government, please don’t run for office again.
Since the Days St. Ronnie, we’ve seen the biggest transfer of wealth in the history of the country, from the middle class to the top 1% of the top 1%.
It’s called Redistribution of Wealth by economists, and it’s called stealing by everybody else.
If you think that’s a good thing for America, for the game to be rigged for a handful people at the expense of the other 310,000,000 Americans, then you are not a Patriot, you are not even a Real Conservative (TM), and you are welcome to leave the USA for the Banana Republic of your choice, because that’s what the policies you support will lead us to become.
LOVE IT!
There is an excellent article in January 2016 GOVERNING magazine that discusses all the issues with State corporate income taxes in a number of States. There is no simple answer that lowering taxes creates economic development. Almost no company pays whatever the book tax rate anyway. There is an extensive effort by corporations to hide income and profits overseas to avoid taxes at all levels.
When our Republican friends are in power, their only economic development strategies are lower taxes and growth magically appears. No actual data (other than From their economists, Cookie L. Digits and Margin F. Erroers) reveals this, but the dogma lives on. As you said what companies that make things and actually do things (as opposed to pure money plays, which our tax structure DOES encourage) need is good infrastructure, transportation and technical, easy access to their markets, a trained workforce, for many businesses access to university research, reasonable utility rates (needed far more than tax issues), and a pleasant, diverse, living environment (including clean air and Clearwater, to attract and keep well trained people). Instead the one party dictatorship in this State believes lowering taxes continuously, and private prisons equal economic development. And they are wrong. Investments in education at all levels matters far more than minute changes to the tax rates.
Supply side economics isnt a theory, at the federal level, its a reality. In 1980 the 1% (AGI $80,000) paid $100 billion in taxes. By 2008, they were paying 500 billion at a lower average tax rate. The UScreated 50 million jobs while countries like fFrance failed to create a single hour of work.
Mainstream economists are now largely captured by a culture dedicated to denying economics. There are now over 40 economists publishing in a similar number of journals dedicated to torturing facts till they”prove” the revenue maximizing tax rate is over 60 %. They use fancy words like “spline”, and “panel data”
To cover up the power of supply side economics to create good jobs with benefits at with a lower tax burden. They especially like “1%”, because they can pretend its a fixed group. Under Reagonomics, there was an explosion of people joining the 1%, the trickle down was a gusher. Of course, unlike france, then its no longer the 1%. Frances 1% has stagnated just like their economy.
You had to mention Reagan! The truth is since he took office in 1981, the lower class has increased by three percent, the middle class has shrunk by 9% and the upper class has grown by four percent. In that 70% of the U.S. economy comes from personal consumption, more wealth in fewer hands at the top keeps growth weak. An “explosion” of people joining the 1% doesn’t translate into the majority of Americans having a better life. For most of us, the American Dream is now more a fairy tale than a possibility. As for the trickle down “gusher” it reminds me of the cartoon showing the 1% standing at urinals with the rest of us down the drain…
Here’s the Cliff’s Notes Version of the US economy: In the decades following FDR, the middle class grew and thrived, in the decades following St. Ronnie and his supply side scam (as admitted to by David Stockman), the middle class has stagnated.
Supply side voodoo sends all the money up to the top, so Johnny John John, the 1% paid more in taxes in the years after St. Ronnie because they MADE ALL THE MONEY.
Only idiots and liars are still peddling that supply side garbage.
If you’re not working at the moment, Hupp, may I suggest a position as a cherry picker, because you have mad skills.
Thucky said, “Under Reagonomics, there was an explosion of people joining the 1%, the trickle down was a gusher.”
Actually, that’s a mischaracterization, John Boy. What it did was to start the US economy on the track to unprecedented INEQUALITY.
The working class, between FDR and Reagan, prospered commensurate with the macroeconomic metric of increased productivity. Subsequent to the Reagan paradigm shift in the American government and economy workers have seen little to no return to them on the massive increases in productivity.
Why the hell do you think Bernie Sanders’ campaign is rocking the country? Because it IS TIME to take the country, the economy and the productivity dividend back back from the plutocracy and give it back to the workers who earned it.
And that’s why Scrooge McDucey’s imposition of austerity on Arizona kills.
Figures lie and liars figure. It does not matter how badly these tax policies are failing to produce what they promise or that business could care less about them. The GOP and ALEC will always find a way to bend some obscure fugure to claim it is working and the media will just print it.
Thanks for the read and your astute comments AV. That’s why we must remain vigilant in getting the truth out!
Bravo! Excellent piece, Linda…look forward to Part 2 of the train wreck that is Gov. Ducey….
Thanks for the read and kind words Cheri!