Tuesday, October 28, 2008

Goldwater Institute: Manufacturing an economic recovery

By Byron Schlomach, Ph.D.

A few weeks ago, I pointed out that Arizona's economy has been disproportionately fueled by the construction industry. In 2006, the proportion of Arizona's total economic output from construction stood at 7.4 percent, 50 percent higher than the U.S. proportion of 4.8 percent. I attributed this to the relatively high commercial property taxes assessed at a rate twice as high as that of residential property.

Interestingly, manufacturing contributed more to Arizona's total economic output, 8.1 percent, in 2006 than construction did. But at 11.8 percent, the share of U.S. output from manufacturing is almost 50 percent higher than Arizona's.

From 2001 to 2005, Arizona's value-added from manufacturing actually fell. In fact, ours was the worst performance of all 50 states over that period. While most of our regional competitors (Colorado, New Mexico, Utah, Nevada, Idaho) were increasing their manufacturing sectors, New Mexico by 200 percent, Arizona's decreased 16 percent. This is all the more evidence that our tax structure is determining our fate.

Arizona is at a crossroads. If we choose to get government spending at all levels under control and then rationalize our tax system by making it more lucrative to open a business, we can avoid becoming the biggest bedroom community in the nation. It's worth rising to the challenge.

Byron Schlomach, Ph.D, is director of economic policy at the Goldwater Institute.

Learn more:

Goldwater Institute: Punishing economic growth through taxes

Goldwater Institute: Corporate Tax Reform: How to Woo Business Without Spending a Dime

State Science & Technology Institute: Value-Added Manufacturing by State, 2001-2005

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