Corporate Welfare, Tax Fairness & Accountability A Proposal For Action Dave Wells, Ph.D. Arizona State Univ. for Arizona Advocacy Network

Income Tax Cuts: tell only part of the story

Source: Citizens for Tax Justice

Sales taxes since 1995? l Prop. 301 increased them l Many localities have been increasing them. l Net effect: approx. 1/3 higher today than in So look at that chart again!

Note: Most of the income tax cuts had kicked in by Dave’s very rough estimate

But what about Corporations? l Tax abatements/Tax expenditures (relief of property tax, sales taxes or subsidized infrastructure) given to business investment l Claim1: Needed to attract business investment l Claim 2: Creates Jobs

Problems! l Lacks accountability (business doesn’t have to repay if it relocates or doesn’t perform as promised). l No guarantees on wages or health benefits necessarily (so employer gets subsidy and workers seek public assistance)

More Problems! l Localities may complete against each (Scottsdale lured Dial Corporation from Phoenix) l Those aren’t NEW jobs, just relocated ones at tax payer expense. l If granted to commercial business that serves local market (as opposed to manufacturing), then other local businesses may suffer (e.g., getting one more major hotel in downtown Phoenix).

Inefficient Market Subsidy l The estimate derived in the appendix suggests that the city of Richmond must forego between $3,500 and $4,400 taxes annually to sustain the creation of one job through the tax abatement program. l Yet only 1 in 4 jobs is estimated to be filled by someone who currently needs a job AND already lives here.

Inefficiency continued… l If only one in four of new jobs are actually filled by a local residents who is unemployed or out of the labor force, then tax abatement programs employ them at an annual cost of between $14,000 and $17,600. In other words, if the newly created job pays between $7.00 an hour and $8.50 an hour including the cost of health benefits, then local government is essentially paying for the cost of employing these individuals at private employers. If one considers alternative ways in which you can spend $14,000 to $17,600 a year on those unemployed or out of the labor force, one can begin to see why a general business entitlement program that guarantees tax abatements is not economically efficient. (Wells 1997)

Just in case you forgot l The state is now estimating an $800 million revenue shortfall. l Tax Structures DO matter.