Thursday, December 13, 2007

Goldwater Institute: Choose It or Lose It

Low tax states demonstrate path to economic success

By Byron Schlomach, Ph.D.

The choice is stark, according to a new report by economists Art Laffer and Steve Moore published by the American Legislative Exchange Council. State policymakers can choose growth and prosperity or they can choose economic hari-kari.

Rich State Poor State coverDuring the 1990s, Arizona chose growth and prosperity. Where Arizona's total state and local tax burden had risen to 11.8 percent by 1991, it has since fallen to 10.3 percent. The result has been phenomenal growth and unparalleled peacetime economic opportunity for this state.

Michigan, on the other hand, has chosen a different path in recent years. While that state historically had a lower state and local tax burden than Arizona, its governments now tax away 11.2 percent of its citizens' incomes.

Michigan is currently experiencing a multi-year, single-state recession. Lawmakers recently attempted to solve their fiscal shortfall by raising taxes on business by $1.5 billion and forgoing spending cuts. In October, unemployment stood at 7.7 percent.

In recent years, Arizona's state government has been on a spending bender, increasing gross spending almost 95 percent since 2000. And now it's time to pay the piper. Raising taxes and relying on gimmicks to keep from having to cut spending is exactly the wrong move. The Laffer-Moore analysis dramatizes this fact. Where Arizona has been gaining population, Michigan has been losing it. Arizona ranks 24th in personal income growth per capita; Michigan ranks 49th.

The Arizona Legislature can feign paralysis in our current budget crisis by claiming control of only 35 percent of the state's budget or it can work with the Governor to make the hard decisions. The former would take us down the road Michigan has chosen. The latter would bring us back to the road Arizonans chose in the 1990s. It's time to choose.

Dr. Byron Schlomach is the director of the Center for Economic Prosperity at the Goldwater Institute.

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