Thursday, March 26, 2009

Goldwater Institute: Solar subsidies—or a better economic climate for all?

Despite its abundance of sunshine, Arizona is home to relatively few solar companies. Concerned that other states are luring the solar industry through tax subsidies, some Arizona legislators are pushing to do the same.

solar panelsA recent Arizona Republic article highlighted the problem. It compared the tax rates, before and after solar incentives, of seven western states. After subsidies, Arizona's tax burden was the highest of the seven, $41.6 million versus $9.5 million in the most tax-favorable state, Oregon.

However, the analysis also revealed that Arizona's pre-subsidy tax burden--applicable to all businesses--also was the highest among the seven. The policy question that arises is whether to lower taxes for all businesses, or single out solar for tax breaks?

For whatever reason, many Arizona politicians think that their economic prognostications are better than the market's. (If so, their 401(k)'s surely are doing better than mine, but I rather doubt it.) Why is it preferable to subsidize the solar industry while maintaining a high tax burden that keeps out other businesses?

In fact, there is something unique about solar: it requires subsidies not only at the front end, but often on the consumer side as well. If Arizona wants to choose economic winners and losers, it doesn't make sense to single out solar for special treatment.

Instead, Arizona should make its tax treatment more favorable to all businesses--including the small businesses that are the backbone of our economy, and which never receive subsidies yet end up picking up the tab. Our Constitution contains numerous protections against unequal treatment, and for good reason: not only is it unfair, but government usually makes a mess of things. A favorable tax and regulatory climate built on a level playing field is the best public policy in the long run.
Clint Bolick is director of the Goldwater Institute Scharf-Norton Center for Constitutional Litigation.

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