Pearce, business not all eye-to-eye

Senate president no friend of tax breaks to lure industries
2010-11-14T00:00:00Z Pearce, business not all eye-to-eyeHoward Fischer Capitol Media Services Arizona Daily Star
November 14, 2010 12:00 am  • 

PHOENIX - Business interests celebrating the new, larger Republican majority at the Legislature may end up having some heartburn over the senators' choice as their leader.

On one hand, Russell Pearce said he is committed to lower taxes and less regulation.

But in a wide-ranging interview on business issues, Pearce, who will become state Senate president, said he remains an adamant foe of laws that create special tax breaks for companies based either on where they locate or the type of business they run.

"I don't like government picking winners and losers," the Mesa Republican said. "I think it's immoral when you give government that kind of power."

Those tax breaks, though, are essential to luring new firms to Arizona, economic-development groups say. And Glenn Hamer, president of the Arizona Chamber of Commerce and Industry, said they will remain necessary even if Pearce is successful in driving down overall tax rates.

"I'm a believer in lowering the tax base evenly and fairly for everybody," Pearce said. He said there is an obligation to treat all business the same.

From his perspective, that means lowering the overall tax rate.

He has several targets in mind.

One is what is called the business "personal-property tax."

In Arizona, business- and residential-property owners pay annual tax on the value of their land and buildings. But businesses also pay the levy based on the value of all of their equipment, from major presses to computers and file cabinets.

And while the tax on any piece of equipment decreases each year with depreciation, it never goes away: As long as the equipment is in use, it is considered taxable.

Pearce finds the system unfair. "You pay a tax when you buy a piece of equipment," he said. "But then we tax you for owning the equipment?"

He also would like a flat personal-income tax.

Hamer said his organization agrees with Pearce's basic assumption.

"We need lower and more competitive corporate income-tax rates, we need lower and more competitive business property-tax rates," Hamer said. But he said that's not enough.

"The reality is that, for a number of these industries, to close the deal . . . you need something more," Hamer said. He said that is particularly important for Arizona to lure manufacturing operations.

"There are a lot of places these companies can go, not just domestically but internationally," Hamer said. "You do need these other tools."

One of those tools involves foreign-trade zones.

In Arizona, most commercial businesses are assessed for tax purposes at 20 percent of their value; residential property, by contrast, is assessed at 10 percent.

But state lawmakers agreed to create special zones for companies that qualify under federal law as importers or exporters, levying a 5 percent assessment ratio on property in those zones.

Enterprise zones, in areas of high poverty or unemployment, have not only property-tax breaks but also tax credits for creating new jobs.

And some companies qualify for special tax credits for research and development.

"All of those tools are important," Hamer said.

He said even politically conservative states like Texas have special tax breaks to lure companies.

The experience in Texas shows that more than just low overall taxes are necessary, the state chamber leader said.

"The fact is, there is some specialized activity that goes on to lure the more mobile, export-oriented technology and manufacturing companies," he said.

If there is any proof that the special tax breaks are needed, he said, that was provided last month when Intel agreed to expand operations in Arizona.

Said Intel lobbyist Jason Bagley: "The fact is that for capital-intensive businesses like Intel, it is not a good comparison to take an Intel factory with the investment that's required to put those in place and treat it the same for property-tax purposes as an office building."

The Arizona property-tax system that applies to all other kinds of businesses "puts those businesses like Intel at a tremendous disadvantage," Bagley said.

Pearce said he has heard all the arguments about why special tax breaks are necessary, especially to attract manufacturing firms, which, generally speaking, have higher wages than service-industry jobs. And he did not dispute that, in some cases, the breaks work.

"But at what cost?" he asked. Pearce said for everyone who pays less, someone else pays more.

"We have groups that are 'profits above all else,' " he said. "As long as they get theirs, they don't care about the rest of the world."

Pearce said it's fine for Arizona to want good-paying jobs. "But if you lower the regulatory and the tax burden, they'll come," he said.

He said his well-known efforts to stem illegal immigration fit into attracting businesses. "When you have safe neighborhoods, they're going to come," he said.

Pearce and the business community - and the state chamber in particular - also part ways on that immigration issue.

It was Pearce who pushed through the law that allows state judges to suspend or revoke the business licenses of firms found guilty of knowingly hiring undocumented workers. Both the state and national chambers, and their allies, sued to overturn that law, with the case going before the U.S. Supreme Court next month.

Pearce has no love for the foes. "The U.S. Chamber of Commerce is 'profits over patriotism,' " he said. "These are groups who think, while we've got a 26-year high on unemployment, they think it's necessary for them to hire illegal, cheap labor. Shame on them."

The legal position of the business groups is not that they should be able to hire undocumented workers but that the state is illegally intruding into the authority of the federal government to regulate immigration.

Pearce and defenders of the law counter that federal immigration statutes specifically give states authority over licensing.

Pearce said his stance fits into his philosophy about government not picking winners and losers. Allowing companies to flout existing federal laws against hiring undocumented workers gives them an advantage over their competitors who hire legal residents, he said.

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