Special property tax giveaways for some business but not others? Payroll tax handouts for large employers to subsidize new hires? Refundable tax credits that allow businesses to claim a refund even though they have no tax liability?
Wrap all these into one big monstrous giveaway and you have HB2492.
For starters, some of the large corporations that will benefit from this bill already do not pay Arizona corporate income taxes. A decade ago the legislature removed the cap on the Research & Development tax credit, which resulted in some companies to claim an unlimited amount of tax credits to offset their corporate tax liability.
But unlimited R&D credits are only part of the benefit. If these credits exceed the companies’ actual income liability in a given year, they are able to carry-forward their credits for up to 15 taxable years. Essentially, it is quite possible that these companies will never again have to pay corporate income taxes in Arizona.
Now HB2492 takes these subsidies to a new level. HB2492 would allow corporations to take their unused R&D credits and convert them into refundable credits to offset any sales tax incurred for infrastructure and other capital expenditures they make in the state. If it seems strange to link two completely unrelated activities (R&D and private infrastructure spending), you’d be right. Perhaps muddying the waters is what it takes to hide a subsidy of this magnitude.
Since the current R&D tax credit program has been so popular, several corporations have accumulated an astronomical amount of unused credits to cash in on this deal. The latest report from the Joint Legislative Budget Committee shows that companies currently hold $1 Billion in carry-forward R&D tax credits. If HB 2492 passes, taxpayers will be writing subsidy checks to corporations for a long, long time.
Just as the Arizona legislature has been wise to reject risky public finance schemes such as Tax Increment Financing (TIF), they have also successfully never crossed the threshold of allowing refundable tax credits of this magnitude. The best tax system for economic growth is one in which taxes are as low as possible, but shared among the broadest base. Carving some taxpayers out of the pie, not only makes the pie smaller, but raises taxes for everyone left in the pie.
The legislation passed out of House Ways & Means last week by a vote of 5-4, for the sake of Arizona taxpayers let’s hope it doesn’t proceed any further.
Imagine a scenario where the government can take a private citizen’s property they suspect was involved in a crime without ever having to charge anyone for a crime.
Before one assumes we are speaking of some foreign country, this is the legal reality of civil asset forfeiture in the United States.
In Arizona, civil asset forfeiture allows law enforcement to seize property they believe is involved in a crime and then take that property through a civil proceeding. And because forfeiture operates under the premise that property itself can be guilty of a crime, it has produced a barrage of strange case names such as “Nebraska v. One 1970 2-Door Sedan Rambler” and “State of Texas v. One Gold Crucifix.”
Civil forfeiture became prevalent in the U.S during the 1980’s as a part of the “War on Drugs.” It was a means to relieve big drug kingpins of the means and spoils of their crimes. However, the use of asset forfeiture by law enforcement quickly expanded to targeting of lower value assets and currency, calling into question whether the activity is motivated by stopping crime or financial gain. Some in law enforcement, such as the City Attorney for Las Cruces, New Mexico, described asset forfeiture as “a gold mine.”
According to the Institute for Justice, Arizona ranks as one of the worst states, earning a D- for abusive forfeiture laws. The state’s dismal score is due to several areas of the law that create a disincentive for innocent owners to fight the government to recover their property.
Fortunately, reform to Arizona’s forfeiture laws is on the horizon. A broad coalition of organizations and citizens have come together to propose HB2477, sweeping civil asset forfeiture reform sponsored by Representative Eddie Farnsworth (District 12).
This legislation is a long time coming for Arizona. Shocking abuses of civil rights and shady uses of funds are a current reality. Cases such as Cox vs Voyles in 2013 demonstrate how innocent third party property owners are easily captured and trapped by a system that is tipped to favor government.
Pima County has had its fair share of scandal when it comes to flagrantly conflicted expenditures of forfeiture monies. Navajo County recently seized a vehicle from an elderly couple from Washington and only returned it after Institute for Justice filed suit. Former Maricopa County Sheriff Joe Arpaio used forfeiture dollars for a questionable trip to Honduras as well as to lease high-end vehicles for top management.
Even former Pinal County Sheriff Paul Babeu abused the program when he used RICO funds to write checks to a non-profit housed within his office and to pay for a political mailer sent to registered voters six months prior to a Republican Primary.
Civil Asset Forfeiture in Arizona is in urgent need of reform. The current system is a threat to property rights and must be rectified. HB2477 would be a substantial step in the right direction – now it’s in the hands of lawmakers and the Governor to do what’s right.
There is much discussion among lawmakers and the Governor this year about how we will prioritize the many needs of the state. Education – all day kindergarten, universities, and k-12 – all want a piece. Then there are the requirements of the State to back fill the financial fallout of Prop 206 in the way of increasing funds to developmentally disabled car providers.
Amid all these constituents who are making their case for additional money – one hand out should raise a lot of eye brows. And that’s the hand (probably dressed in a very expensive suit) of some venture capitalists in the state.
SB1212, the ‘Angel Investor Tax Credit Bill’, is not as sweet sounding as its Orwellian assigned name indicates. A more apt name would be to call it the Shark Tank Bill because of its many similarities to the hit TV Show, with one difference: wealthy investors get a tax credit for making their risky venture capital investments.
Under the bill government employees at the Arizona Commerce Authority will dole out tax credits to “qualified” investors to hedge their potential losses in risky new start-up companies. The argument made to defend the program is Arizona needs the tax credits to attract more investors into Arizona and that without them, good ideas in Arizona won’t find capital. This of course is not true. Good business ideas and plans can always find money to get off the ground because investors stand to gain millions of dollars in profit to do so.
The reality is, if a business is unable to attract the start-up capital it needs, perhaps the venture is not seen as viable, or scalable or profitable enough. If that is the case, why would taxpayers be expected to flip the bill for it? After all, we don’t stand to benefit monetarily from the businesses’ success, why should we therefore shoulder the losses of its failures? And if a business was to attract the necessary start-up capital regardless of the tax credit, why are taxpayers subsidizing a business activity which would have occurred anyway?
Venture capital investing is inherently risky. Successful speculations have the potential to enrich their investors immensely. However, it is the risk itself and the profit motive which tempers the activity, and incentivizes investors to be prudent. The Arizona Commerce Authority is not better equipped than the free market to facilitate these types of transactions.
Taxpayers should not be in the business of subsidizing risky venture capital investments by wealthy investors. It’s a program that picks winners and losers among taxpayers, among venture capital investors, and among aspiring entrepreneurs.
Lawmakers should continue to stay out of the venture capital business and reject SB 1212.