Sunday, June 28, 2009

Arizona to adopt a low flat tax in 2012?

See the Arizona Daily Star's article on the budget compromise at the House. I don't have time right now to read the myriad documents floating around about this or to make the phone calls needed to find out what's going on. A vote won't happen until Monday; we'll likely hear in the days to come about the backroom dealing that made this happen.

Major tax reform seems like a nonsequitur response to the State's budget woes. The House seems to be counting on the coming tax reductions to be offset by an influx of economic refugee businesses from high tax states, something think-tank whitepapers have been promoting heavily. While that's possible, it's not a sure thing. Modern, high-tech business clustered in (e.g.) Austin and Silicon Valley in part because those are areas where highly skilled employees will want to live. In the latter case, the presence of one of the world's top universities helps. Social climate, largely intangible, can often trump regulatory climate. Engineers, scientists, highly educated and highly intelligent people tend to like the company of their own and tend not to like when their foreign or homosexual colleagues are subject to constant hostility from the neighbors. And Arizona never attracted any major educational institutions at all; its land-grant university is the closest approximation. Tax code simplifications and rate cuts will bring business here at the margin, but it's doubtful that Arizona's (already low and relatively simple) taxes are what's keeping Californian business from coming here.

This isn't to say that the Democrats are any better. Perhaps they're worse. See (House Minority Leader) Lujan's nutty remark in the Star article: "Certainly we want to help to incentivize businesses to be successful, but we also need to make sure we are preventing this huge economic crisis we're going through now from occurring in the future." It's possible in principle for a "huge economic crisis" to be caused by underprovision or mis-provision of public goods by government, and possible in theory for underprovision of public goods to be caused by taxes being too low. But the idea that the current recession is caused by underprovision of public goods is ridiculous. Arizona's low taxes didn't cause moral hazard at Fannie Mae and Freddie Mac, didn't induce overleveraging, didn't create the systemic risk problem in the credit default swaps market, and didn't cause the money market to seize up. Taking it to still be Saturday at the current hour (a stretch), I'll say that David Lujan's remark is the most ridiculous thing I've read all week. And Friday I was helping an (unnamed) state Libertarian Party executive director get over some of his misconceptions about climate science, so I've read some pretty silly things.

No comments: