A proposal by Arizona House Speaker Andy Tobin to increase a tax credit given to businesses that invest in research and development by 200 percent could be just one of many pushed by Republicans again this year in the Legislature.
Tobin said Friday that he’s also considering another tax credit proposal and fellow Republicans have other ideas about helping businesses by adding new tax credits and other programs.
Cutting revenues runs counter to Gov. Jan Brewer’s proposed $8.9 billion budget for the year beginning July 1, which doesn’t envision any tax cuts or credits in coming years other than a revamping of the state’s complicated sales tax collection program. She said last month she hopes that effort will be revenue neutral but isn’t positive that will end up being the case.
The state already will have to deal with the looming expiration of a voter-approved temporary sales tax that has brought in about $1 billion a year and phased-in business tax changes passed in the last two years expected to impact the budget by $567 million a year within five years. Many at the Capitol liken the combination to Arizona’s “fiscal cliff.”
“We keep hearing from the GOP that we have this huge fiscal cliff and we’ve got no money,” said Rep. Chad Campbell, the top Democrat in the House of Representatives. “But we’ve got no money because they keep throwing it away. And it’s frustrating.”
The tax changes that are not yet on line come from a huge Republican-sponsored economic development package designed to improve Arizona’s business climate that was the centerpiece of the GOP agenda in 2011. It’s estimated to reduce yearly state revenue by $539 million when it’s fully implemented in 2018. Last year, a 25 percent capital gains tax cut and other business-friendly provisions designed to spur investment even more passed. It will save mostly wealthy taxpayers and businesses and represents a loss of state revenue of an estimated $108 million a year by 2018.
Republicans argue those measures helped spur investment and improved the business climate.
“We’ve gone from ninth to fourth in tax structure, in a friendly business environment here in the west, from ninth to fourth in a very short period of time,” Tobin said. “The next question is, can we move that bar a little bit more and continue to do better.”
Tobin has introduced a bill adding $5 million to a current $5 million a year tax credit in the budget year beginning July 1 and increasing it again the following year, bringing the total to $15 million a year. A second bill he’s introduced but says he is completely revamping would provide $20 million a year in insurance premium rebates tied to high technology investments.
The proposals come even as the state’s independent budget analysts predict that a current surplus will be gone within three years and the state will see structural deficits after that. That expected shortfall has worried even members of Tobin’s own party.
Tobin brushed off concerns that additional tax cuts or credits will harm the state’s budget outlook. He said he’s looking at offsetting the costs with cuts elsewhere, including eliminating $20 million a year for the Citizen’s Clean Elections Commission., which funds participating candidates’ runs for office.
That will be difficult: A tax check-off that brought in $6.2 million to Clean Elections in 2011 was eliminated by the Legislature last year. The commission only got about $9.3 million that year from their other major funding source, court assessments. That funding was created by the voters when they created the commission in 1998 and changes required voter approval.
And Tobin said while Brewer’s budget proposal doesn’t include the changes, hers isn’t the only voice in the room.
“The answer is the governor has listed her set of priorities, we all see those,” Tobin said. “They’re not the only priorities, because she’s not the only one at the state Capitol.”
Democrats have long been opposed to their counterparts’ tax cut proposals, which they label as hurting regular Arizonans while giving handouts to big business and the wealthy.
Campbell, the House minority leader, said he actually thinks the current R&D tax credit is one of the few in the state that actually has been proven effective. But he said he’s concerned nonetheless.
“I think at some point, we’ve got to stop doing these haphazard tax cuts and these piecemeal approaches and actually have a long-term economic development plan that has an overall structure to it and I just don’t see that,” Campbell said. “We just give a tax credit here, we make a tax cut there, and just cross our fingers and hope it works.”