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Business tax incentive debate indicates division in GOP

As debate looms in the Arizona Legislature regarding the best tax policy to foster job growth, a conservative, pro-market group is warning lawmakers against enacting incentives that benefit only certain companies.

“I don’t think voters overwhelmingly elected Republicans to go to the Capitol and hand out favors to certain industries and further distort the tax code,” said Steve Voeller, president of the Arizona Free Enterprise Club.

Actually, Voeller merely reiterated the view of many conservative lawmakers on specific business-based tax breaks – they are akin to the government picking winners and losers in the marketplace.

But there are also those who see tax incentives as an indispensable economic development tool that other states have taken advantage of, leaving Arizona behind. A state that doesn’t offer incentives will get left behind, argues Sen. John Nelson, a Litchfield Republican.

Nelson proposed legislation last session to extend tax credits for film productions, but the proposal ultimately failed.

“We are a capitalistic society. Whether we like it or not, government itself follows the capitalistic rules as much as the private sector. They are competing,” Nelson said.

Nelson and many economists have argued that tax incentives often act as “deal closers.” They said while they’re not necessarily the primary reasons for a company’s decision to relocate to a state, they can clinch the deal if other communities are also being considered.

“And we have to acknowledge the fact that whether we recognize it or not, we’ve lost a lot of businesses because we did not have and we’re not able to compete in the incentive-matching that other states were offering,” Nelson said.

This push-and-pull among GOP lawmakers over tax policy is threatening to resurface again during the 2011 session; and it could derail any Republican-backed plan to aid the state’s struggling economy.

The disagreement partly led to the demise last session of House-backed legislation that would have provided a series of tax breaks to businesses.

The arguments against tax incentives are familiar: They distort the tax code, favoring a select few. Lowering the tax burden for some means others will have to pick up the tab. It sends a message that only certain businesses are welcome in Arizona. Voeller’s group contends the tax changes should be broad-based, impacting everyone.

Voeller’s group also compared economic prosperity indicators and concluded that when it comes to personal income growth or unemployment, for example, Arizona has, during the past 10 years, outperformed some states that offer incentives in many categories.

“It is not government’s job to pick winners and losers,” said Senate Majority Leader Chuck Gray. “If someone has the money to pay a lobbyist to make sure that their particular tax cuts get implemented, then where does that leave the other business segments in the economy?”

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