The Goldwater Institute opines that Arizona could improve its ranking, and hence its economy, by “making some fundamental changes, including reducing the per-capita cost of government, ….simplify its sales and property tax systems,… reforming the sales tax, and eliminating the corporate and personal income taxes. Arizona also needs revise its regulations to make them more sensible.”

Notice that the state of Texas ranks within the top ten on most issues. Why is that? The Goldwater Institute explains, and suggests what Arizona could do, in  Policy Report 251 a 44 page document. Here is the Executive Summary:

During the recent recession, the experience of Texas provides a marked contrast to that of Arizona. Arizona’s gross domestic product (GDP) fell at more than double the rate in the nation while Texas’s GDP barely fell at all. Texas’s employment in 2011 was at an all-time high and even greater than in 2007; by contrast, Arizona’s total employment in 2011 was 10 percent below its peak. Although most of the nation has seen hard times like Arizona has since 2007, Arizona’s economic challenges

did not begin with the Great Recession. In fact, Arizona’s inflation-adjusted per capita income has lagged the nation’s for decades and stands steady at around 87 percent of the national level. While Arizona’s per capita personal income growth was fifth lowest among the states, Texas’s was seventh highest despite a large influx of people without jobs.

Arizona performs poorly because it taxes and regulates as if it were a state with natural advantages that can absorb bad public policy. In a comparison of several economic policy indexes between Arizona and its six neighbor states, Arizona outranks only California and New Mexico. These policy indexes include measures of economic freedom, business friendliness, tax systems and burdens, and cost of living. Texas ranks first in one measure, ranks second in two measures, and receives eight top-10 rankings.

Although many think oil and gas are the secret of Texas’s success, energy production is half the relative size of Texas’s economy now compared to what it was in the 1980s. The real secret is Texas’s policies. Those policies include no personal income tax, relatively low business taxes, a mostly simple tax structure that is fairly easy to enforce and comply with, gentle regulation that allows its natural advantages to be exploited, and private ownership of most of the state’s land.

Arizona has its advantages, including mineral wealth, balmy winters, stable geology, an outsized allocation from the Colorado River, and an advantageous state constitution that protects individual property rights and liberties. Arizona’s natural disadvantages are significant and very costly, though. They include lack of access to a water port, remoteness from the majority of Americans who live near and east of the Mississippi River, relatively limited labor and energy resources, and geological features that are visually stunning but topography that presents a surface transportation nightmare. Lawmakers need to take these issues into account when formulating policy and not add costs in a state that is already at some cost disadvantages.

The experience of Texas shows that Arizona can best exploit its comparative advantages with lean, unobtrusive government. The state should adopt Texas-style policies that (1) lower taxes and keep them low; (2) simplify the tax system, especially sales taxes and property taxes; (3) restructure the tax system to eliminate income taxes; (4) reduce business property taxes; (5) reduce regulations such as licensing, land use planning, and zoning; (6) sell state trusts, increasing the stock of private land; and (7) reduce the size of government and end state revenue sharing with local government.

Perhaps the new State Legislature could take some of these principles to heart and build better policies for a better economy.  They could start with repeal of the  Renewable Energy Standard and Tariff.

See also:

Petition to Arizona legislature – Dump Renewable Energy Mandates

The story was really about President Obama feeling the heat of rising gasoline prices. In his radio address, Obama said he wants to end $4 billion in annual tax breaks for the oil and gas industry. That tax break is mainly the oil depletion allowance, established in 1913. The tax break was given to partly offset the risk of oil exploration and encourage oil companies to conduct more exploration to replace the depleting reserves of producing wells. If the depletion allowance is removed, the added cost of doing business will increase. Guess who will pay for that at the pump? By the way, Department of Energy announced it has given $21 Billion in (not tax) subsidies to the alternative energy industry in the form of loan guarantees. The Wall Street Journal has an analysis here.

Oil companies have been making what seem like large profits. Investors Business Daily puts it in perspective:

Exxon earned $10.65 billion on $114 billion in revenue. Shell’s $8.78 billion profit came on $114.84 billion in revenue. Chevron’s expected top line of $66.62 billion will likely yield a bottom line of $5.69 billion. These are not outsize margins — roughly 9% after taxes in the case of Exxon, less than 5% for Shell and 8.5% for Chevron.

In comparison, Apple made $6 billion on revenue of $24.7 billion, a profit margin of almost 25% in the first quarter. Google’s profit margin for the same period was nearly 27%. Too high-tech for you? McDonald’s makes 20 cents on the dollar.

Gasoline prices depend on supply and demand, and over the short term, the expectations of what supply and demand may be. Political turmoil tends to raise prices because of the uncertainty on the supply side.

Federal policies have put many areas off-limits to exploration and production. And, there is threat of more withdrawals. For instance, the Fish & Wildlife Service may list the dunes sagebrush lizard as an endangered species. This could shut down, or at least hinder, exploration and production of oil in southeast New Mexico and West Texas, including production in Texas’ two top producing counties. And, the EPA ruled that Shell Oil cannot proceed with exploratory shallow-water drilling on vast tracts that it has leased from the Federal government in the Beauford and Chukchi Seas north of Alaska, claiming the exploratory drilling may violate the Clean Air Act. Shell did not consider the emissions of an ice breaker that may be required during these operations. Where is all that global warming when you really need it?

Obama is contributing to the uncertainty. In his January State of the Union speech he called oil “yesterday’s energy.” In March, at a speech at Georgetown University, he said that he wanted to accelerate the production of oil and gas in the U.S. In April, he said he wants to stop “subsidizing yesterday’s energy sources.” The implications of the EPA’s effort to control carbon dioxide emissions is another source of uncertainty.

Taxes also have an impact on the price of gasoline. See map of gasoline taxes by state here and map of diesel taxes by state here. Federal taxes are 18.4 cents per gallon (cpg) for gasoline and 24.4 cpg for diesel fuel. You will see that 17 states have taxes higher than the national average.

For more information, see Gasoline Prices and the Obama Energy Policy

Obama clueless on energy part 1

Obama clueless on energy part 2

Obama administration still clueless on energy

Instead of using funds for its prime duties, the Obama administration and Congress spend our money, very inefficiently, on political and politically correct projects.

For instance, how much did the feds spend to fight Arizona’s new immigration law, SB1070, a law which was thought necessary by the failure of the feds to do their job? At the same time, the “Justice” Department will not pursue blatant voter intimidation by the New Black Panther Party.

More examples:

Government regulations will cost the economy $789 million to establish “critical habitat” for the arroyo toad in California.

Obama has committed $2 billion more of the taxpayers’ money to pursue his solar energy fantasy by subsiding solar plants in Arizona, at a cost of $386,000 per job, which is more than seven times the median household income in this country. Pajamas Media opines, “It would be bad enough for the federal government to subsidize the construction of solar power projects if they worked. It would still be an inefficient use of resources; it would still exceed its constitutionally enumerated powers; it would still be an immoral redistribution of wealth to politically connected companies. But at least in that case American taxpayers, somewhere, might get a Hoover Dam out of the deal. In this instance, that’s simply impossible. There is no known solar technology that can reliably deliver large-scale power in a cost-effective way. There is nothing even in the research stages that promises that result anytime soon… This is nothing less than a sheer waste of public funds to create a mere appearance, a chimera to satisfy the vanity of a powerful Green demagogue longing to appear visionary.”

And unless Congress acts, we are about to pay much more for government. The largest tax hike in history will take place January 1, 2011:

If Congress does not extent or make permanent the “Bush” 2001 and 2003 Tax Relief regulations, all personal income tax rates will rise. The child tax credit will be cut in half, the “death tax” of 55% of inheritances over $1 million will return. Capital gains tax will rise from 15% this year to 20% in 2011. The tax on dividends will rise from 15% this year to 39.6% in 2011.

Obamacare results in twenty new or higher taxes . Congress’ failure to index the Alternative Minimum Tax (AMT) to inflation will ensnare 28 million middle-class families versus 4 million last year. Taxes will also increase for businesses large and small.

“An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation.” –John Marshall

Obama and Congress are shirking their duties and expanding government much beyond Constitutional authority. They seem to have forgotten their oath to “preserve, protect and defend the Constitution of the United States.” We should remind them. These practices will ultimately destroy our economy and our freedom.

The federal government, with its “entitlement” programs, is committed to increased spending for social security, medicare, and medicaid. By some projections, the cost of those programs will exceed revenue from income tax in about 2052. What then?

It is unlikely that Congress will significantly cut this “entitlement” spending. Their solution instead is more taxes. Perhaps that is why there is a great effort to impose a European-style value added tax (VAT). Such a tax would expand government and raise prices on almost everything we buy. It will transfer vast sums of money from productive use to wasteful government control.

The rational thing to do would be to cut spending, particularly in the realm of government healthcare, but that is probably politically impossible, especially with the current crop of Congress people. The problem will not go away if we ignore it. There are some hard choices to be made about all government spending. It is better to plan now and begin to make those choices rather than wait for even more drastic consequences to be forced upon us.