Wednesday, February 16, 2011

AZ Republic: Slow Down Tax-Cut Plan

Posted By on Wed, Feb 16, 2011 at 11:04 AM

The Arizona Republic urges lawmakers to slow down the rush to pass a massive tax cut, given the state's structural deficit:

But the fiscal parts of the legislation need a hard-nosed, cold-eyed, cost-benefit analysis.

House Speaker Kirk Adams argues that Arizona will become more competitive by cutting business taxes. But his proposal includes a four-year phase-in of reductions, starting in 2014, that would shrink revenues by an estimated $400 million a year when they take full effect in 2018. How much would be offset by increased investment? No one knows.

What we do know is that the temporary sales-tax hike ends in 2014, knocking about $1 billion out of state revenues. With the economic outlook so turbulent, Arizona should not commit now to cutting taxes then - particularly because it would be almost impossible to restore that funding, given the two-thirds requirement to raise revenues.

The high risk of setting future tax cuts in cement was why even financial hawks opposed this proposal last year.

A state struggling to pay its bills, with the threat of slashing services or hiking taxes, doesn't inspire confidence in investors. Businesses don't accelerate hiring, they throttle back.

If anything, the Republic editorial will likely swing votes in favor the tax-cut plan, despite the long-term damage to the state's finances.

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