My policy is to never make sport of a person's religion, however fanciful I may find it. So to the extent that Arizona's Republican leaders and their mouthpieces believe, as an article of faith, that tax cuts have made the state economy stronger...as Pope Francis would say, who am I to judge?
Now, if we're going to move beyond religion to facts, the story is different. The Arizona Republic reported that two decades of tax cuts will cost the state's general fund $4 billion this year. This comes from economists at ASU's W.P. Carey School of Business, hardly a hotbed of socialism or "you hate Arizona!"
This is a useful departure point to a deeper examination. Have tax cuts been good for Arizona's economy? Have they been good for Arizona?
In general, the most authoritative study yet, published late last year by William Gale, Kim Rueben, and Aaron Krupkin at the Tax Policy Center, found no connection between cutting top income-tax rates and state growth.
The three researchers hone in on Kansas Gov. Sam Brownback's "real life experiment" in supply side economics for the Milken Institute. The Brownback cuts, enacted four years ago, have been a template for other Republican governors. But they have been a disaster and Kansas' economy is suffering. These GOP cuts also typically result in regressive sales taxes that fall heaviest on the working poor, widening inequality.
Now let's look at Arizona specifically:
Above we see Arizona measured against two states with similar population, Washington and Massachusetts. Although the three have very different tax systems, only Arizona has done the full-on supply side tax cutting for years. Tax cuts have not generated more tax revenue, contrary to supply side religion. As a populous, highly urbanized state, Arizona suffers from far lower revenue than it needs.
In the chart above, we measure Arizona in household income against the United States and two peer competitor states in the West. As you can see, Arizona is below all of them. And except for the tailwinds of the Clinton boom in the late 1990s, Arizona started to diverge downwards in the late 1980s, when the GOP started its combination of tax cuts and budget slashing. The right-wing orthodoxy holds that tax cuts and other "business friendly" policies such as hands-off regulation create more economic activity, thus increasing incomes. It hasn't happened in Arizona.
If anything, the situation is more striking when measured at the metro level. Metropolitan Phoenix has a stronger economy than the rest of the state. Yet it badly trails peer metros in the West in per-capita personal income, a gold standard of economic well-being. Again, the divergence is most pronounced after the late 1980s. Note that the others are in blue or purple states. Phoenix is the most populous metro area of the group in the chart and yet it has the lowest income. So tax cuts have not only not raised all boats, they have arguably sunk most. (And, no, living costs don't make up for the astonishing low income levels in Phoenix).
Tax cuts should attract high-tech companies fleeing the high costs and high taxes of California, right? Actually, no. While Arizona, and especially metro Phoenix, continues to draw back offices, call centers, and low-end firms from elsewhere, they have failed in the biggest growth sector of this recovery, tech. The firms expanding outside the Bay Area look for talent and amenities that Phoenix lacks. So they go to Seattle, Denver, San Diego, and LA. Arizona's tech is mostly legacy, semiconductors and defense, neither of which were attracted by tax cuts.
Nor have Arizona's policies helped in building new advanced industries or companies. According to the PricewaterhouseCoopers and National Venture Capital Association survey, from the first quarter of 2014 to the first quarter of this year, Arizona attracted approximately $387 million in venture capital. During the same time period, Arizona's population peers, Massachusetts and Washington, brought in more than $12 billion and $2.8 billion respectively. And remember, Massachusetts is notorious as "Taxachussets" — yet the tax environment in the Bay State doesn't affect its business vibrancy. Colorado, with about a million and a half fewer people, attracted nearly $1.7 billion during the same time. It's also worth noting that Arizona's VC activity has never again reached the levels of the late 1990s.
According to the Census Bureau, Arizona had 134,434 business establishments in 2014, the most recent year for which data are available. Massachusetts had 173,575, despite its blue-state "anti-business" reputation. Washington posted 179,012.
Even in the one area where one would expect serious competitiveness, metro Phoenix gets a "meh." The influential Emerging Trends in Real Estate report by the Urban Land Institute and PricewaterhouseCoopers ranked Phoenix only No. 17 among markets to watch this year. It was below Seattle (No. 4), Denver (6), Portland (9), as well as San Francisco (8) and Boston (13). Perhaps the permissive regulatory structure and tiny impact fees help encourage house-building, but that hardly makes for a robust, diverse economy. And, again, that's what's needed in a populous, urbanized state.
GOP tax policy didn't help Arizona after real-estate dependence left it as road kill in the Great Recession. Arizona was among the slowest states to recover. It took until last December for employment to reach pre-recession levels. Real gross domestic product is still well below its mid-2000s highs. GDP growth was relatively strong in last year's fourth quarter. But the same report showed Arizona as one of the least productive states, one that has seen a decline in real GDP from 2000 through 2015. Adjusted for inflation, the state's merchandise trade exports have barely budged from 2007-2008.
The Republicans' war on cities and decades of civic malpractice left Phoenix ill-prepared to take advantage of one of the most striking phenomenons of recent years: the back-to-the-city movement. Sure, central Phoenix is doing better than circa 2000, but not when compared with its peer competitors. It lacks major headquarters or innovation districts. I can think of no other major city so economically hollowed out.
When boosters talk about Arizona's great economy, they typically cite a select few measurements: population growth and, until the Late Unpleasantness, assorted building metrics. Crediting tax cuts for in-migration lacks any solid research. Sunshine and an abundance of relatively inexpensive, highly subsidized sprawl housing in the metro areas are the more credible causes. The former is a classic example of Say's Law. Unfortunately, population growth doesn't pay for itself, particularly when tax revenues and needs are so imbalanced. The state has high carrying costs. It lacks either the public investments or attendant powerful economy to pay for them while also ensuring high quality of life. Your tax cuts at work.
The consequences of decades of tax cuts are on display almost every week in Arizona's Continuing Crisis. Some of the worst school funding in the nation, year after year, decade after decade. The worst cuts to higher education — coming on top of repeated funding pullbacks that were never restored. Inadequate infrastructure. Fewer college graduates choosing to live here compared with peer states and metros. A massive underclass stuck in the shadows.
Here's a small but topical example of the corrosive effect. The Phoenix Business Journal reported on the state hiring two new railroad inspectors to augment its staff of six(!). The reason? The BNSF "Peavine" is the most dangerous railroad for grade crossings in the United States, specifically in metro Phoenix. The real story is that this was once rural railroad running into the small city of Phoenix through a few villages. But around it grew up the nation's 13th most populous metropolitan area. Yet never did the state or municipalities commit the resources to provide enough underpasses or overpasses. They have been, as in so many other situations, playing catch-up but never catching up. Why? Because taxes always must be cut. "Growth pays for itself." Only it doesn't in Arizona.
It's a tragedy but a self-inflicted one. It will continue as long as today's Republicans keep winning elections. As long as their toadies claim "Everything's Fine." The feedback loop has worked very profitably for the few in powerful positions. And no price has been paid at election time for the disaster they have made.
Jon, the points you make have actually been somewhat validated by a comparison of the experiences of Minnesota and Wisconsin that appeared online last year. Minnesota, which has invested in education and infrastructure in lieu of cutting taxes, has a stronger economy than Wisconsin, which as we know pursued the cut-taxes approach.
Appropriate ideological approaches to governing vary with the distance of the government from its constituency. The closer to the voter a government is, the more progressive it can be, because it is easier for voters at a local level to ensure--by means of the ballot box or through intra-election-cycle activism--that the "progress" is "real" and not some chimera designed to extort more hard-earned dollars from the tax payers.
Hence, local governments (see: City of Phoenix) should be relatively progressive, state governments should be more moderate, and the federal government, which is "farthest" from the voters and handles more like the "Titanic" when it comes to changing course should be the most conservative. This doesn't mean that the feds should eschew "progressive" ideas--only that they should be "conservative", if you will, in the implementation of them.
Conversely, those who govern at the state level should not use their (in my personal opinion understandable) frustration with the fiscal irresponsibility of the federal government to be sticks in the mud when it comes to considering and implementing fresh ideas.
Another challenge of the federal government is identifying "best practices" because, strictly speaking, there are few--if any--"peer nations" with democratic customs and institutions completely analogous to ours. A state has--depending upon the specific nature of the issue being addressed--up to 49 peers to research in search of "best practices."
While adjustment of tax policies is one industrial recruitment tool, it is certainly not the only one, and--as you point out--states that have invested in amenities such as education and infrastructure have been more successful in attracting major industries.
A vicious circle exists, because major corporate headquarters bring with them corporate leaders who become natural stakeholders in the community--helping to support the arts, etc. and making the area even more attractive. Mergers in recent years have left Arizona with branch managers in charge in most industries--compounded by the large numbers of winter visitors who supported the arts, rooted for teams, and voted for school funding "at home."
Posted by: Robert H. Bohannan | June 16, 2016 at 10:19 AM
It's not an educated workforce, not high tech industries, or low taxes that brings businesses to AZ, it's still sunshine. Midwestern retirees are lured here to spend the remainder of their life away from the cold and lifeless horizons. The elderly are nearly 20% of our overall population and growing. The younger ones who migrate here are usually following their parents who can give them a leg up with a place to stay or financial assistance. They have a high school education, perhaps an associate's degree and a baby. Their friends follow them when they hear there's employment. That employment is usually a call or records center, medically related serving the retirement market, perhaps a job in the extensive warehousing and distribution sector, or landing a job on a construction crew building housing in the affordable suburbs and exurbs.
None of those jobs are likely to be high tech. What high tech employment that is left is usually legacy firms like Orbital ATK, a Motorola spinoff. A lack of investment in providing cutting edge engineering education at the university level has kept the region from exploiting the high tech hiring boom of the recent decades. Devoting financial resources to convincing the local populace that cutting taxes is better policy than upgrading the universities sends the message the political leadership wants to project. It doesn't really want to attract business and doesn't really expect any business to take up their offer to cut taxes, underfunding the kinds of things business wants like good job training programs and a commitment to fostering business innovation by promoting investments in higher ed.
What the state of Arizona is serious at promoting is a state that has successfully been weaned onto the libertarian ethos and the elected reps who toe the line about driving out urban forces that try and make headway against regressive policies. Elderly voters and the religious flotsam deposited here by economic misfortune has given right ringers the necessary base they needed create a state within a state: A state where nothing is given and nothing is expected, a place where the righteous will earn their just rewards in the believing.
Posted by: ed dravo | June 16, 2016 at 01:49 PM
And this is from Tom Rex at ASU, who has been debunking the Kooks for years:
http://www.azcentral.com/story/opinion/op-ed/2016/06/15/my-turn-no-evidence-tax-cuts-have-helped-arizona/85848528/
Posted by: Rogue Columnist | June 16, 2016 at 02:26 PM
Dravo, Very well said, particularly the last paragraph.
Posted by: Cal Lash | June 16, 2016 at 05:13 PM
Right wing ideology, like any religion, is more than happy to substitute faith for facts. Indeed, like any religion, it relies on that.
That, and the continued gullibility of its followers.
So, they continue to have faith that trickle down economics works. Or it will, if we just give it a little more time. Despite 36 years of "facts" to the contrary.
Of course, for some of them, it has worked exactly the way they hoped it would.
Posted by: B. Franklin | June 16, 2016 at 05:34 PM
I wonder what Robb the mouth piece for the religious economic politicians in Arizona think about Thomas Piketty’s, PGT, Progressive Global Tax, or Europe’s suggestion of a, FTT, Financial Transaction Tax or better yet a, RHT, Robin Hood Tax. For many in Arizona the only tax they feel obligated to pay is the 10 percent required by the elders.
Posted by: Cal Lash | June 16, 2016 at 08:07 PM
Correlation doesn't necessarily equal causation. Unless the implication is higher levels of taxation lead to higher levels of productivity.
Posted by: Joe | June 16, 2016 at 09:34 PM
What Arizona needs to do is to restructure its university system:
http://PSUandAzTech.blogspot.com
Posted by: Sanjeev Ramchandra | June 16, 2016 at 10:09 PM
This is silly...
Anyone thinking that state income taxes can help or hurt a state economy significantly is nuts.
There's just way too many variables and noise in the data and, in total, the state income taxes just aren't that a big deal.
The FRED graphs are meaningless with incorporating a cost of living component.
BTW, this is from the Tom Rex article posted above:
The results of the Grand Canyon Institute study are in line with the conceptual analysis presented in the report. Supply-side economics (cutting taxes) is valid, but it works only under specific conditions, such as indicated by the Laffer Curve. These conditions were not present in Arizona during the 1990s and 2000s when most of the tax reductions occurred. Among the reasons why tax cuts have not had a positive effect is that the tax burden in Arizona was not above average in the early 1990s and that the tax cuts through the 2000s focused on personal taxes — tax reductions to businesses are much more effective at stimulating economic growth.
Think business (and property) taxes don't effect business decisions?
Then why do states, counties, and cities give companies big tax breaks to move to their jurisdictions?
Posted by: INPHX | June 17, 2016 at 08:30 AM
Going Naked will reduce taxes?
Lady Godiva
Lady Godiva was an Anglo-Saxon woman who lived in England during the 11th century. According to legend, Lady Godiva's husband Leofric, Earl of Mercia, promised to reduce the high taxes he levied on the residents of Coventry when she agreed to ride naked through the streets of the town.
Posted by: Cal Lash | June 17, 2016 at 10:25 AM
RE: INPHX
Because they're stupid. Even auto dealerships are promised tax breaks to build on one side of a road vs the other because it demarcates cities. Do you think the dealership wouldn't build a dealership if it couldn't get a tax break? Both cities need to withhold the breaks.
Also cities with nothing else to sell like urban amenities or job training need to have something in the swag the development office hands out. If you've got nothing else and the employer has nothing in terms of skilled employees, machinery etc it might make a difference. But who needs them, the civic infrastructure like sewers, schools to support the employees makes those jobs net losers.
Posted by: ed dravo | June 17, 2016 at 02:39 PM
E-Gads! Cal says I should be a Republican. Lady Godiva is my 25th Great Grandmother. I should be supporting all these tax cuts.
I go wrong?
Posted by: Ramjet | June 18, 2016 at 05:14 PM
"Supply-side economics (cutting taxes) is valid, but it works only under specific conditions, such as indicated by the Laffer Curve."
Made me laugh! Who can possibly believe that hooey?
Posted by: Jerry McKenzie | June 18, 2016 at 06:20 PM
" hone in on "
Aaaaarrrgghhh
Not you too, Jon. You're too fine a writer to emit this solecism.
home in on
as in homing pigeon
as in hitting your target through a succesion of increasingly-accurate changes of direction as one nears the goal
Posted by: joel hanes | June 18, 2016 at 08:29 PM
I used "hone" as in to sharpen or make more precise, which is allowed (although Fowler is silent). But thanks for keeping me honest.
Posted by: Rogue Columnist | June 18, 2016 at 10:59 PM
Rogue again writes the truth about state income tax cuts.
Improving Arizona fiscal policy of taxes and spending should be sought; sadly, it will do little to rehabilitate the horrendous reputation of intolerance that Arizona elected officials have brought to the state.
Arizona is ground zero for Trump country. Are the cracker trumpets going to bring companies to Arizona? The Republican "establishment" which reflects the right-wing view of corporate America isn't attracted to a Trump land. Corporate Democrats are rightly turned off.
Deep red Intolerant Arizona will only reinforce its toxic nature with Brewer, Uncle Joe the sheriff and a solid Trump victory in Arizona in November.
Arizona: Land of Stupid, Land of the Anti-Intellectual, Land of the Intolerant. Home of the lower income retiree.
Posted by: Anon | June 19, 2016 at 08:53 AM
"hone" as in to sharpen
But "hone" is transitive, while "home" is not. The phrase makes no sense with a transitive verb and no object.
"hone their criticisms of the Kansas experiment" makes sense.
Posted by: joel hanes | June 19, 2016 at 10:58 AM
Cal has stated this many, many, many times and Ed just put the period at the end of this true statement: The powers in the state DON'T WANT ANY NEW BUSINESSES TO COME TO THE STATE. You can see it at the city level, county level and state level. NON-BELIEVER BUSINESSES ARE NOT WANTED HERE. Their arrival would dilute the power base. They would bring their non-believing ways of life.
Posted by: Mombo Number Five | June 19, 2016 at 11:40 AM
ANON said, "Arizona: Land of Stupid, Land of the Anti-Intellectual, Land of the Intolerant. Home of the lower income retiree."
As usual I enjoy your posts ANON and dont disagree with you on the above. However just for your info, I am two of those things, not very smart and I retired in 1991 on $27000 a year. I got here in 1950 and fell in love with the desert, the horned toads and coyotes and discovered Edward Abbey, Charles Bowden and Jon Talton among other good things. And unless I leave for Uruguay after the election I plan on dying leaning up against a mighty Sajuaro.
Wow I am glad we got brilliant folks like Joel. I know what a verb is but had to look up transitive verb. I am still not sure what all that is about. But I thought I understood Jon's piece sufficiently to get the drift. Maybe I can hire Joel for some dumbbell grammar lessons since I flunked that class back in 58. But I did get A's in Psychology, Philosophy, English Literature and History. And then I quit that scene and just went to redin and ritin. And became what my fellow cops called the social worker with a badge.
PS, when I need help, I just call Mike.
And get A Secret Order.
Hasta luego,
Cal, from the Great Sonoran Desert,
What's left of it.
Posted by: Cal Lash | June 19, 2016 at 11:42 AM
Mombo, there is one business"they" bring to the state. Theocracy.
and just for fun:
http://www.strawpoll.me/10303389
Posted by: Cal Lash | June 19, 2016 at 12:11 PM
GOP bashing with style:
The party of Lincoln and Liberty was transmogrified into the party of hairy-backed swamp developers and corporate shills, faith-based economists, fundamentalist bullies with Bibles, Christians of convenience, freelance racists, misanthropic frat boys, shrieking midgets of AM radio, tax cheats, nihilists in golf pants, brownshirts in pinstripes, sweatshop tycoons, hacks, fakirs, aggressive dorks, Lamborghini libertarians, people who believe Neil Armstrong’s moonwalk was filmed in Roswell, New Mexico, little honkers out to diminish the rest of us, Newt’s evil spawn and their Etch-A-Sketch president, a dull and rigid man suspicious of the free flow of information and of secular institutions, whose philosophy is a jumble of badly sutured body parts trying to walk. (Garrison Keillor)
https://en.wikiquote.org/wiki/Garrison_Keillor
Posted by: wkg in b ham | June 19, 2016 at 03:24 PM
AMEN
Posted by: Cal lash | June 19, 2016 at 03:46 PM
"The powers in the state DON'T WANT ANY NEW BUSINESSES TO COME TO THE STATE."
Thanks, Cal & Mombo. That is something to chew on for awhile.
No unions AND no new businesses means no reinvestment in our state; no one to challenge the current Arizona slave-wage culture; and the oligarchs can continue until every dime has been sucked out of our people and we have all been reduced to dust and bones.
Posted by: sj | June 20, 2016 at 11:05 AM
SJ, the Desert always wins.
And
The Future is "The Good News" by Edward Abbey.
Posted by: Cal lash | June 20, 2016 at 02:14 PM
Well, I thought Mr. Bohannon had a very good post.
As INPHX alluded to, the troubles in Kansas may have more to do with Kansas being what Kansas is and other macro factors, versus solely the tax cuts. Therefore, it stands to reason that maybe cutting taxes and expecting that to magically bring immediate growth to Kansas was foolhardy and caused a lot of revenue problems, although it surely also saved a lot of people and businesses a lot of money.
Long-term though, I still believe lower taxes and a pro-growth environment are attractive. But that's only one piece in a puzzle and certainly like ALL states, Arizona should do its BEST to improve, ALL THE TIME.
Posted by: Mark in Scottsdale | June 29, 2016 at 11:55 AM
Jon,
I think you know where I stand on the subject. If you read the newest (and final) treatise I sent you, it's all there in the first 20 pages.
Basically, the right-wing oligarchs would rather keep the state's economy at a controllable level. If that means there is anemic or no growth, they are perfectly happy--just as long as they retain their power to effect an outcome that keeps their influence intact.
Calling this state "business-friendly" without mentioning the caveat of "conservative, religiously-hypocritical" makes it a deliberate misrepresentation.
But then, all they care about is keeping their "little world" intact--and damn-to-hell those seeking ethical fairness and true justice for all.
Posted by: Bradley Dranka | July 01, 2016 at 08:33 PM