DO TAX CUTS=JOBS? YES, MAYBE, NO

posted by Michael Chihak

Republican leaders in the Arizona Legislature say their proposals to cut business taxes will make the state more competitive and encourage job creation.

But will they? Depends on whom one talks to and what information one considers. Hence, the answer is definitive: yes, maybe, no.

First, lower taxes are a good thing, in general, and they certainly are part of the mix of what businesses consider when choosing location and making expansion and hiring decisions.

But they are not the be all to end all, according to numerous economists. Let's quote just one, Dennis Hoffman, director of the L. William Seidman Research Institute at Arizona State University. In a report he and colleague Tom Rex wrote in November 2008, they said:

"Nearly any position on the relationship between taxes and economic performance is supported in the published literature. However, the bulk of the modern literature indicates that taxes have only a small effect on economic growth."

The report goes on to say: "Generally, tax burdens must be far out of line with competitor regions before much of an effect on the economy can be measured. ... In general, tax policy is an inefficient way to stimulate the economy. Investment in infrastructure and education has been shown to have a greater effect on economic growth."

By anecdote, one can surmise that tax cuts have had little effect on national job growth. It has been widely reported that the Bush administration tax cuts of 2001 and 2003 were followed by creation of far fewer jobs than the administration projected. Additionally, those tax cuts -- and more -- remain in effect today, and job creation can be described as lagging at best, anemic at worst.

Discussion and study of the issue is important as the Legislature stands ready to approve the tax cuts, and Gov. Jan Brewer is poised, perhaps, to call a special legislative session to consider a comprehensive economic development package.