Abolish Arizona Income Tax
Tuesday, July 7th, 2009Abolish State Income Tax and Keep Arizona Dollars in Arizona!
Elimination of state income tax will give every Arizonan an annual pay raise of $3,000 to $6,000 - an increase in total per capita personal income annually of $19 to $38 billion, plus allow us to keep income tax dollars that we now regularly pay to the State.
Changing out-dated laws that determine the flow of bank deposits in and out of Arizona will help balance our state budget and transfer wealth to our citizens without picking someone else’s pocket! Our neglect to recognize today’s financial realities has reduced tax revenues, stunted per capita income growth, eliminated job opportunities, halted economic potential and stifled capital availability for small businesses.
Nevada is 18th in the U.S. in per capita income at $31,266. South Dakota is 32nd with $29,234. Arizona is 39th with $26,838. Nevada beats us by $4,428 per person and South Dakota by $2,655. These are real dollar differences that affect Arizonans’ standard of living and purchasing power. We can give an annual pay raise to every Arizonan if we eliminate all state income tax, personal and business, as did Nevada and South Dakota.
Financial institutions, as an example, will flock here if we put banks on a level playing field with credit unions. Credit unions do not pay Arizona income tax. Arizona chartered banks do. But believe it or not, because none of the big banks are headquartered here, our local banks paid a scanty $20 million in state income tax last year towards our $12 billion budget.
Compare the differences in the amounts of bank assets housed in Arizona, Nevada and South Dakota to see the effect of removing the tax! Banks in Arizona held a combined $61.8 billion in deposits as of June 30, 2004. Four years later, June 2008, the growth only reached $78.6 billion, a 27% increase, in spite of one of the greatest economic booms ever experienced by Arizona. During this same period of time Nevada banks grew from $40.7 billion in deposits to $199.7 billion, a growth of more than 491%.
Nevada, population 2,495,529, a much smaller state than Arizona, no longer has a corporate income tax so financial institutions raced to set up subsidiaries and headquarters in a tax haven. They took their wealth and high paying jobs with them to Nevada.
As of June 2008, Arizona had only two locally chartered banks (both owned by out-of-state interests) with branches out of state. They had 29 out-of-state branches that controlled $609 million out-of-state deposits. Nevada, by comparison, had 7 banks with 3,227 out-of-state branches that controlled $286.5 billion out-of-state deposits.
South Dakota, with a population of 781,919 and one of the few states with no personal or corporate income tax, enticed a Citibank subsidiary to move there. Subsequently, South Dakota went from $15.7 billion in deposits in 2003 to $74.8 billion in 2008, a 475% increase. A much, much smaller state than Arizona now has nearly the same amount in deposits. An added bonus is that South Dakota has 7 banks with 3,411 branches that control $258 billion in out-of-state deposits.
Both South Dakota and Nevada have developed extensive information about the value financial institutions bring to their respective states in the way of economic dynamics, including added taxable wages from job creation. These states have benefited from favorable tax treatment that is an attraction to major financial institutions. Even tiny Delaware, with a population of 853,904, has $176.8 billion in deposits and 7 banks with 1,535 out-of-state branches that control another $148.5 billion in out-of-state deposits.
The wealth controlled in the states of Nevada, South Dakota and Delaware is a phenomenal amount on a per capita basis.
Yes, we can blame some of our per capita lag on our immigration issue! But, our problem stems more from legislative neglect of the power of receptive finance laws. This forces our citizens to earn such a small income. Further, our local control of bank assets has gone from 95% at the time I was Arizona State Treasurer down to 4%. We need to keep Arizona money in Arizona! Here our money will generate greater sales tax revenues. Our deposit growth is currently limited and Arizona deposits are sucked out of state. We no longer control our own economic destiny in Arizona. Decisions are made for us by out-of-state money centers. We can reverse this trend by providing a statutory environment that will encourage businesses and banks to headquarter here, or to move subsidiaries to our state.
We formed the Arizona Financial Institutions Task Force in 2006 to help State Senate Majority Leader Chuck Gray address bank related economic solutions for Arizona. Senator Jim Waring has been a regular attendee. I am chairman of the Task Force. Candace Wiest, President & CEO of West Valley National Bank, a member of the San Francisco Federal Reserve is our Vice-chair. Our members are highly successful local business people and bank presidents. Our mission: To provide an independent assessment of opportunities for financial institutions to improve the business climate in Arizona.
Our Task Force believes we will act as a magnet to major global financial firms that want to locate to the U.S. as well as to out-of-state banks and their subsidiaries if we eliminate state income tax as an obligation for our locally headquartered businesses. Financial institutions with sizable state corporate income tax expenses would trip over themselves to move their headquarters to Arizona because this change would increase the value of their charters and therefore the value of their stock.
Can you imagine the money multiplier effect we are losing by not retaining control over our own deposits? Each dollar reproduces itself by 4 to 10 times when loaned locally. It is like giving Arizona its own printing press. Our state is losing out on the maximum multiplier effect that bank dollars can create while other states benefit from what should be ours.
In addition, without charging state corporate income tax, we may encourage some of the big guys that Congress is bailing out of their holes with billions of our dollars to move here. I believe we can capture some of that money for Arizona.