State lawmakers gave preliminary approval Tuesday to a package of large tax breaks for business -- but not before a debate Tuesday about economic theory.
The program crafted by Republican legislative leaders and Gov. Jan Brewer would phase in reductions in property taxes and provide a sharp cut in corporate income taxes. It also would let some multi-state firms escape paying that corporate levy at all.
Legislative staffers say the plan would reduce state revenues this coming budget year by $38 million; by 2018, when fully implemented, the cost is pegged at $538 million.
But proponents said Tuesday there really won't be any loss to the state.
Rep. Jack Harper, R-Surprise, said it's a simple question of supply-side economics.
"Businesses see that taxes are going to be cut,'' he explained. "They decide to make an investment. They grow jobs.''
Harper said that, at least in the short term, cutting tax rates could reduce revenues. But he said the message the legislation sends guarantees any losses will be temporary.
"Businesses thinking about, 'What state might I move to because of the communism of the state I'm in,' they might decide that Arizona's an attractive place to be,'' Harper said.
Rep. Steve Farley, D-Tucson, said he's not willing to cut taxes now in hope that supply side economics works.
"I think that we need to be more concerned with pay as you go and being able to make sure these things are paid for,'' he said. Farley compared the legislation to running up a credit card based on a perceived need "and hopefully have enough income to pay it off when the bill comes.''
But House Speaker Kirk Adams, R-Mesa, said the state needs to take that risk.
"The biggest gamble we can take is to do nothing at all as it relates to our economy,'' he argued.
"We have to begin to make positive policy actions to create jobs in the state of Arizona,'' Adams continued. "If we don't then we are at the mercy of our natural business cycle which is reliant on real estate and construction.''
House Minority Leader Chad Campbell, D-Phoenix, said there is a better alternative that achieves much of the same result.
He proposed eliminating all special tax credits now available to corporations. Campbell said that would allow the state to lower the overall rate from just under 7 percent where it is now to 5.4 percent, all without affecting the revenue bottom line.
Adams, however, said he prefers the original plan which drops the corporate tax rate to 4.9 percent by 2018, saying the rate needs to be that low to make Arizona more attractive to companies to locate or expand here.
Not all the objections came from Democrats.
Sen. Andy Biggs, R-Gilbert, criticized the creation of a new quasi-public Arizona Commerce Authority to replace the state Department of Commerce. Biggs said the authority will have authority to give away $25 million a year in "deal closing'' funds to lure companies to the state.