Calling it the ultimate solution to the state's economic woes, members of a House panel approved an extensive package of tax breaks for business on Monday.
The move came over objections from two of Democrats on the Ways and Means Committee who questioned cutting state revenues even with the budget now in a deficit. Rep. Tom Chabin, D-Flagstaff, pointed out that one element of the plan will result in a shift of property taxes from businesses to homeowners.
House Speaker Kirk Adams, R-Mesa, the chief sponsor of the plan, conceded that point. But he said Chabin and Democrats are missing the point: Until taxes on businesses are more competitive with other states, Arizona will never attract and retain the kind of companies that provide high-paying jobs - jobs that aren't dependent on growth and housing.
But Chabin noted that the tax breaks are not targeted at or limited to companies that pay high wages. Instead, there are across-the-board reductions in corporate and individual income tax rates, elimination of the state property tax and reducing the burden on businesses for local property taxes, that last move hiking the cost to homeowners who will have to pick up the slack.
"Homeowners' taxes are going up," Chabin said. "Pinnacle West taxes are going down and so are (taxes on) strip club owners," he continued, the reference being to the parent company of Arizona Public Service that also manages the Palo Verde Nuclear Generating Station.
Adams also brushed aside concerns by Rep. Steve Farley, D-Tucson, that companies won't locate here as long as Arizona doesn't spend more on public education and universities.
"An educated work force and a good public school system and a good higher education system are important components of a diversified economy," he said.
"But ... those things don't matter as much if you can't even get the attention of the corporate relocation specialists, those people who are looking throughout the states across the country of where they're going to land," Adams continued. "And if we have an uncompetitive tax structure, we're not even going to be in the game."
Adams noted HB2250 also has special programs to provide job training dollars and tax rebates to firms that locate or expand in the state. All of that, he said, will stimulate the economy.
"Money talks, Arizona students walk," Farley responded. "We can only get businesses to come here if we bribe them to come here."
Adams countered that he doesn't see a "competitive tax structure" as bribery.
Central to the debate are two philosophical disagreements: whether lower taxes actually produce more jobs - and more good jobs - and who should shoulder the burden of supporting government services.
Both of those are wrapped up in one element of the plan which would, over time, lower the assessment ratio on business property. This is the figure used to compute how much property tax each firm owns.
The figure is now 21 percent of the "full cash value" of the land, buildings and equipment, a figure that has already gone down from 25 percent just a few years ago. HB2250 would reduce that eventually to 15 percent.
But reducing the assessed valuation of businesses in a city, county or school district means the tax rate has to go up. And that burden will fall on homeowners whose land and buildings are now valued for tax purposes at 10 percent of their value.
Rep. Rick Murphy, R-Glendale, who chairs the panel, said it's a "long-standing problem" that taxes on business are disproportionately higher than residents.
"That's great for individuals and folks that retire here," he said.
"But what it's not great for is job creation," Murphy continued. "As long as we continue to think we can stick it to corporations and that it's free money and it falls from the sky and there's no consequence to everyday people when we do that, we're going to keep getting what we've got, and that is no good job creation."
Murphy said the same situation exists in income taxes where corporations pay a flat rate of slightly less than 7 percent. HB2250 phases that down to 4.5 percent.
But the measure also slashes individual income tax rates, which are on a sliding scale, across the board by 10 percent. Adams said this is necessary to stimulate business because 80 percent of all firms in this state are organized in a way so they pay no income taxes themselves, with the earnings instead passed on to owners who pay at the individual rate.
The legislation was supported by a parade of business lobbyists who backed Adams' contention that the package of tax cuts and incentives will help spur economic development.
Adams said he is cognizant of the state's current deficit, with a $1.4 billion gap remaining this fiscal year between revenues and expenses and an anticipated deficit next budget year of $3.2 billion. He said that is why the tax cuts are delayed so they don't kick in before July 1, 2011.
Murphy said that, even with the delay, it could bring immediate economic benefits. He said companies will be willing to expand in Arizona "once they see something has been put in place, something they can rely on."
While Chabin and Farley voted against the bill, Rep. Jack Brown, D-St. Johns, the third Democrat on the panel, supported it. Brown said some changes are necessary to the state's tax structure and he wants to keep the measure alive.