Corporate Welfare, Tax Fairness

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Corporate Welfare,Tax Fairness Accountability

• A Proposal For Action
• Dave Wells, Ph.D.
• Arizona State Univ. for
• Arizona Advocacy Network

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Income Tax Cuts tell only part of the story
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Source Citizens for Tax Justice
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Sales taxes since 1995?

• Prop. 301 increased them
• Many localities have been increasing them.
• Net effect approx. 1/3 higher today than in
  1995. So look at that chart again!

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Daves very rough estimate
2001
Note Most of the income tax cuts had kicked in
by 1995.
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But what about Corporations?

• Tax abatements/Tax expenditures (relief of
  property tax, sales taxes or subsidized
  infrastructure) given to business investment
• Claim1 Needed to attract business investment
• Claim 2 Creates Jobs

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Problems!

• Lacks accountability (business doesnt have to
  repay if it relocates or doesnt perform as
  promised).
• No guarantees on wages or health benefits
  necessarily (so employer gets subsidy and workers
  seek public assistance)

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More Problems!

• Localities may complete against each (Scottsdale
  lured Dial Corporation from Phoenix)
• Those arent NEW jobs, just relocated ones at tax
  payer expense.
• If granted to commercial business that serves
  local market (as opposed to manufacturing), then
  other local businesses may suffer (e.g., getting
  one more major hotel in downtown Phoenix).

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Inefficient Market Subsidy

• The estimate derived in the appendix suggests
  that the city of Richmond must forego between
  3,500 and 4,400 taxes annually to sustain the
  creation of one job through the tax abatement
  program.
• Yet only 1 in 4 jobs is estimated to be filled by
  someone who currently needs a job AND already
  lives here.

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Inefficiency continued

• If only one in four of new jobs are actually
  filled by a local residents who is unemployed or
  out of the labor force, then tax abatement
  programs employ them at an annual cost of between
  14,000 and 17,600. In other words, if the
  newly created job pays between 7.00 an hour and
  8.50 an hour including the cost of health
  benefits, then local government is essentially
  paying for the cost of employing these
  individuals at private employers. If one
  considers alternative ways in which you can spend
  14,000 to 17,600 a year on those unemployed or
  out of the labor force, one can begin to see why
  a general business entitlement program that
  guarantees tax abatements is not economically
  efficient. (Wells 1997)

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Just in case you forgot

• The state is now estimating an 800 million
  revenue shortfall.
• Tax Structures DO matter.