PHOENIX – Arizona Republicans are seeking a deal that will lower tax rates and introduce a flat-rate income tax just months after voters passed a new, higher excise tax on high-income people to fund schools.
Gov. Doug DuceyDoug DuceyArizona Passes No Ban on “Vaccination Passes” Why Republican Politicians Stick With Trump Arizona Legalizes Test Strips That MORE Detect Fentanyl In Drugs (R) and state lawmakers have proposed a flat 2.5 percent income tax that would cut state tax revenues by $ 1.5 billion. The State House and Senate are working on a vote on a final budget agreement in the coming days.
“We have record earnings in the state of Arizona. This has been a very difficult year for small businesses in Arizona, for working families, and this plan really prioritizes them and allows them to keep more of the money they make, ”said Daniel Scarpinato, Ducey’s chief of staff, in an interview with Phoenix CBS partner this week.
For Ducey nearing the end of his second term, drafting a massive tax cut would become the basis of his legacy as governor – and the building blocks of a future campaign for public office, be it a run against Sen. Mark KellyMark Kelly: Republicans are losing patience with the election test in Arizona Trump is the Democratic secret weapon Top House Democrat, which is requesting a break from selling arms to Israel: reports MORE (D) that Ducey declined interest in, or a possible run for the White House.
“This is something the governor has wanted to do for a while. We talked about it a lot six years ago, ”said Victor Riches, president of the conservative Goldwater Institute and former top advisor to Ducey. “If we can pass this, I think that would be his signature achievement by far. He’s looked at many other positive accounts over the years, but I think this would dwarf all of his other accomplishments in comparison. “
In interviews at the state capitol, Republicans who made the cut say they have an opportunity to completely rethink the state’s tax laws due to an unexpected surplus from the coronavirus pandemic. At a time when the state is trying to attract major new business investment, they say they equate Arizona with neighboring states.
“We have essentially two years of growth in one,” said State House majority leader Ben Toma (R), the proposal’s architect. “In order to attract a large company here, we have to create special incentives in order to be competitive.”
Arizona budget analysts say the state is sitting on surpluses and a rainy day fund, both of which are measured in billions of dollars.
“The last month was a record month. We have never collected so much, ”said MP Regina Cobb (R), who chairs the House Appropriations Committee. “We have a very positive outlook from this. What better time to give something back to taxpayers? “
However, opponents of the bill are concerned that it is a reversal of Proposition 208, a measure passed by voters last year, a 3.5 percent tax on incomes over $ 250,000 for individual applicants and over $ 500,000 to collect for joint applicants. This money will go to educational programs after voters approved it with 52 percent of the vote in 2020.
“The tax cut is in many ways an end to the work the people of Arizona did on Proposition 208,” said MP Jennifer Longdon (D), who opposes the cut. “A flat tax benefits the rich in our state, but it really doesn’t do anything for the people who work and fight.”
An analysis by the progressive Arizona Center for Economic Progress found that 91 percent of the tax cut benefits would apply to those in the top quintile of the income spectrum who earn more than $ 108,000 a year.
Toma acknowledged that the tax cut would mean more to high-income workers and that the bill should reduce the tax burden created by the initiative passed by voters. But he said it would boost economic growth that otherwise wouldn’t happen and create more revenue for the state government.
“It’s a percentage, so by definition two percent of $ 500,000 is a lot more than two percent of $ 50,000,” he said. “We wanted to make sure it was a tax cut for everyone.”
City and rural officials have raised their own concerns and may be the biggest hurdle for Republicans advocating the flat tax. Decades ago local governments traded their right to tax revenue for a revenue-sharing scheme that earns them 15 percent of state income tax revenue. Cutting the overall pool, these officials say, will put a heavy strain on their budgets.
“A flat tax would bring the budget of the city of Phoenix to its knees. The flat tax proposal is a loss of around a third of the funds that cities receive from the state, ”said Phoenix Mayor Kate GallegoKate Gallego Cities and states need to lead as the window of opportunity for climate action is shortening. As soon as a COVID-19 epicenter in Arizona emerges from the lockdown Congress, Congress should immediately work out a comprehensive act of recovery (D) said in an interview on Tuesday. “Restoring Arizona’s economy fundamentally without a public process is deeply wrong.”
Gallego said the proposal alone would cost Phoenix about $ 82 million in funding, which it relies on from the state’s revenue-sharing program. State Senator Paul Boyer (R), who represents north Phoenix and parts of Glendale, told colleagues he was concerned the tax cut would damage law enforcement budgets at a time when Republicans are opposed to police defunding to run.
“A cut of $ 82 million is enough for a Phoenix resident to see this in their quality of life. If you need an emergency response, it will be slower. We will not be able to maintain our infrastructure, ”said Gallego. “The largest component of our general fund is the police department. The police authority’s budget is mostly made up of people. “
Some rural Republicans and Republicans who represent conservative sections of Phoenix are concerned about the impact of the tax cut. In private gatherings, rural lawmakers have raised the prospect, according to sources in the area, that the GOP could fight for votes in legislative chambers where they have the smallest majority.
To address these concerns, Republican legislatures included a provision that would keep the city’s share of state income tax revenue stable over several years. How long this indemnity agreement will last has yet to be decided.
Nine other states, mainly in the rust belt and on the east coast, already have flat-rate income taxes. Thirty-three states, including Arizona, have tiered income tax rates. Another seven states – Alaska, Washington, Nevada, Wyoming, South Dakota, Texas, and Florida – have no state income taxes.
Democrats and fiscal hawks also fear that the new proposal would lead to severe budget cuts in the future if the financial picture is not as rosy as it is now. Arizona law requires a two-thirds vote from the legislature to approve new revenue increases, a virtually impossible threshold that can be reached in a tightly divided swing state.
“It would be a really lasting legacy. It would be really difficult for future lawmakers to come in four or five years and just turn it around, ”said Riches.
Longdon compared the proposal for a flat tax to the Colorado taxpayer’s Bill of Rights and recently passed Kansas tax cuts that put the state deep in the red.
“There are real concerns, particularly how this will affect public safety,” she said. “I see it as pretty regressive.”