It wasn’t any single torpedo that had sunk House Speaker Kirk Adams’ proposal intended to spur the state economy through tax cuts and incentives to businesses.
The proposal sank under the weight of provisions that, simply put, were adamantly opposed by too many Republicans.
Indeed, the bill appeared to have been doomed the moment it sailed from the House — not only because Gov. Jan Brewer sent strong signals that she didn’t want it on her desk but perhaps more significantly, Republican senators were ideologically divided over it.
This division was in full display on April 27, when Senate Republicans raised concerns that appeared irreconcilable at the time. The next day, GOP leaders from both chambers decided to wrap up the session without passing the so-called jobs bill.
At the core of the dispute is lawmakers’ diverging views about how best to rebuild Arizona’s economy and make it resilient enough to withstand the market’s booms and busts.
Some cast it as a battle of ideas between those who do and don’t believe in supply-side economics — the view that the most effective way to create economic growth is to lower the barriers for people to produce goods and services, such as by reducing the marginal tax rates.
Others take a more nuanced approach. Some in the Republican caucus believe in tax cuts as a way to stimulate the economy, but argue that the state, which is reeling from historic budget deficits, isn’t in a position to give any money away.
In addition to the debate over tax cuts, there are Republicans who believe in incentives and argue that in a capitalist system, businesses will ignore states that do not have any to offer.
But some view tax credits as government picking winners and losers and instead advocate for broad-based tax changes, such as lowering the tax rates for everyone.
There was no doubt that senators would have liked to see certain provisions of Adams’ bill enacted, but they also strongly disliked other parts of it.
The problem was that the bill had enough elements of concerns that it ultimately failed to gain support. Indeed, to some Republicans, the bill also suffered from sins of omission; they complained that the measure focused on getting companies to relocate to Arizona but it didn’t offer much to business that are already here and are struggling to survive.
“They’re all right in one sense. Broad-based business tax reform is needed so our focus (was on) economic development incentives. That’s if we want to really compete,” Adams told the Arizona Capitol Times. “What the bill attempted to do was to bridge both areas, and recognize that it’s not all or one.
“It takes a combination of tools in order to get the kind of economic growth we need.”
For example, Adams points to Texas, which has taken the approach of putting in place a good business tax policy along with focused economic development incentives.
That package works, he said, adding that it’s the same results that a study by economist Elliott Pollock found.
At the end of the day, the Senate Republican leadership counted only about six members who were at that time willing to vote for the measure.
“In the shape that it came over I just thought it was too massive,” said Sen. John Huppenthal, a Republican from Chandler.
But with some adjustments, he said he felt it was within their grasp to produce a bill that could have gone all the way through.
More specifically, Huppenthal wanted to keep the cuts to the corporate income tax that were in the bill. If done right, it would have been a “generational piece” that would do Arizona good for a long time to come, he said.
Sen. Ron Gould, a Lake Havasu City Republican, said he wouldn’t have voted for H2250 as it came out of the Senate Finance Committee because of its job training and tax credits components.
“When you do targeted tax cuts, they’re essentially cuts to groups that can hire a lobbyist and send them down to the Capitol to carve them out a tax cut,” he said.
What Arizona needs are broad-based tax cuts, he said.
Senate Minority Whip Steve Pierce agreed.
Pierce said he disliked the bill’s enterprise zone provisions, which would have provided tax incentives for companies that moved to Arizona.
They would also apply to existing companies that expanded their operations by creating new positions and paying higher salaries.
“It’s a giveaway to people coming from out of state. What were we doing in there for the small guys that are already in our state and are suffering?” Pierce said.
But Sen. Jay Tisbshraeny, a Republican from Chandler, said certain targeted tax cuts have been proven to work, and the results have been immediate.
Take last year’s legislation to provide for tax credits for renewable energy manufacturing companies that expand or move to Arizona, he said.
Tibshraeny tied a decision by a Chinese company that makes solar panels to move to Arizona to last year’s passage of the tax credits program.
Another company is considering moving to Chandler, but the city’s competition in this case is Austin, Texas, according to Tibshraeny.
These companies wouldn’t have considered Arizona without the legislation, he said, adding, “We are already seeing the benefits.”
Sen. John Nelson, a Republican from Litchfield Park, said he is open to any proposal to get businesses to move to Arizona.
“Look at the businesses we’ve lost because other states have had better incentive programs than we have,” he said.
Ultimately, a combination of factors contributed to the bill’s demise: senators’ objections, Brewer’s reservations and her late-session alternative to the program, Senate President Bob Burns’ concerns, and lawmakers’ desire to go back to their districts.
“We have been in session for almost 18 months and everybody was just sick of it,” Pierce said.
But Pierce anticipates a “jobs” bill coming back — if not in a special session this year then in regular session in 2011.