‘Ax The Flat Tax’ From This GQP-Only Fantasy Budget

Don’t say I didn’t try to warn you. ‘Ax The Flat Tax’ Talk Before This Damn Fool Idea Is Sprung On Us At The Last Minute:

For those of you who were not born yesterday, you know that the state budget negotiated between the governor and Republican legislative leaders, and their favored stakeholders like the Arizona Chamber of Commerce and Industry, is typically sprung on the legislature at the end of the legislative session, rather than debated in committee hearings with public input through regular order.

This is quickly followed by a vote-a-rama for any bills that Republican leaders want to bring to the floor before declaring sine die, and often in the wee hours of the night when no one is present watching but a handful of reporters.

So the current plan appears to be to spring this major rewrite of Arizona’s tax code into a “flat tax” on the legislature at the end of the legislative session to prevent the public opposition to the flat tax plan that arose the last time Republicans in the legislature tried this damn fool idea.

This is exactly what our authoritarian GQP-controlled legislature now plans to do, the will of the people be damned.

The Associated Press reports, Arizona GOP budget deal envisions massive income tax cut (for corporations and the wealthy, of course):

A budget deal struck between Republican leaders of the Arizona Legislature and Gov. Doug Ducey includes implementing a flat 2.5% income tax that cuts $1.5 billion a year from state revenue and keeps higher-earning taxpayers from having to directly pay a new 3.5% surcharge to fund schools.

This is the perfect storm of things Arizona Republican leaders hate: Voters choosing to fund our schools AND making the super wealthy pay a bit more in taxes.

They have nothing but contempt for the voting public. Remember that. https://t.co/AraRiAR0K8

— Jim Small (@JimSmall) May 18, 2021

The agreement would cap the maximum any taxpayer will owe with a new voter-approved tax surcharge for education at 4.5% — the current top tax rate. It envisions using $836 million in state general fund revenue in the coming budget year to make up the difference so the full 3.5% surcharge voters approved in November in Proposition 208 will go to schools, if the measure survives a state Supreme Court challenge.

The deal struck by Senate and House leaders with the Republican governor essentially cuts 25% from personal income tax revenue, with most of the savings going to higher-earning taxpayers.

The deal also cuts commercial property tax rates, pays down state pension and other debts and will increase the state’s super-low weekly unemployment benefit from $240 to $320 a week once a set of triggers are met. Lawmakers had been considering a pair of competing proposals to raise unemployment pay.

Republicans who hold one-vote majorities in both the House and Senate were briefed on the package Monday, and House Majority Leader Ben Toma said late Monday night that GOP House members were mulling over the package. The budget has not been formally introduced.

Some Republicans were wary, while others were supportive even before receiving the full details.

“We have a state that has a massive surplus, and we can take care of the needs of the state and at the same time give money back to the taxpayers,” Rep. Jeff Weninger, a Chandler Republican, said Monday.

Republican Sen. Paul Boyer of Glendale was critical of several parts of the plan, including the tax cut.

“Not enough ongoing for Universities,” Boyer said in a text message Tuesday, after being briefed. “Need more fiscal responsibility in paying down debt, more in the Rainy Day fund. Not prudent to cut so much in taxes.”

Democrats are virtually certain to unanimously oppose the deal, since it envisions a huge tax cut they dislike because they consider state government massively underfunded, especially K-12 schools. They instead want to boost teacher pay, which is among the lowest in the nation, and invest in other state priorities.

“Giving away $1.5 billion in long-term permanent tax cuts is something that we would not support,” Rep. Reginald Bolding, the House minority leader, said. “We believe that those dollars could be re-invested in teacher salary. Let’s make Arizona teachers Top-25 in the nation, and add a $7,000 pay increase. (Democrats) had a budget that would do that.“

Toma led the charge on the income tax cuts, which eliminate the state’s graduated income tax structure in favor of a one-level tax rate that’s lower than the current bottom tier rate of 2.59%. The current maximum rate is 4.5%, which would reach 8% with the Proposition 208 surcharge.

Toma said the new maximum rate of 4.5% would not affect the new revenues created by the 3.5% Invest in Education initiative because the budget deal taps general fund revenue to make up the difference. Proposition 208 imposes a 3.5% tax surcharge on income above $250,000 for individuals or above $500,000 for couples. Supporters say it could raise about $940 million a year for schools, although the Legislature’s budget analysts estimate it would bring in $827 million a year.

“It changes where part of the money comes from,” Toma said. “It doesn’t actually change the total money available to education.”

The changes are possible because of a big increase in revenue from income and sales taxes, which occured in Arizona and other states despite fears the pandemic would hammer state revenues. The Legislature’s budget analysts show revenue for the budget year that ends on June 30 is running nearly $700 million above projections and they estimate fiscal year 2022 revenues will be nearly $1 billion above forecasts, on top of a current budget surplus.

Ducey in Janaury proposed $600 million in income tax cuts phased in over three years. His $12.6 billion proposal for the budget year that starts July 1 would shave nearly 10% of revenues by the time it is fully phased in.

In contrast, the deal Ducey made with the Legislature would cut about 25% of the state’s income tax revenue. It will be phased in by the 2024 budget year. Toma said spending would be about $13 billion.

Toma laid out the basics of the new budget deal in an interview with The Associated Press, without providing the actual documents. They were later obtained by the AP. In addition to the income tax cut, the deal also lowers the property tax rate for commercial buildings. Most of that cash goes to local governments, but rising property values mean there should not be a major revenue impact.

The deal also fully exempts veterans pensions from imcome tax, which Ducey proposed last year before the pandemic forced a speedy end to the legislative session after lawmakers passed a bare-bones budget that included only basic spending. That proposal got pushback from some Republicans before the coronavirus sidelined regular budget talks.

The new deal would provide raises for state troopers and corrections officers, and to thousands of state Department of Economic Security, child safety and select other state workers. Most state workers haven’t had a raise in a decade. It will use $300 million to shore up the pension plan for state law enforcement officers.

Infrastructure spending also gets a big influx of cash, with $200 million earmarked for new highway and bridge construction, $100 million for roadway repaving and $140 million for internet broadband projects to serve rural areas. The deal also includes $200 million for a new drought mitigation fund.

Universties and community colleges would get an additional $130 million for various programs. And there is new money for a chronically underfunded K-12 building and maintenance fund.

There’s also about $100 million in new K-12 school spending, but there is no provision to repay the full $930 million schools are still owed from budget gimmicks used a decade ago. Tens of thousands of teachers went on strike in 2018 and won a 20% pay increase but also demanded other boosts and said there should be no new tax cuts until state school funding greatly improved.

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Note: How much of this extra funding is actually from federal COVID-19 relief payments to state and local governments, which comes with strings attached to it: states cannot use the money to give tax cuts, it was intended to backfill years of budget cuts. Our craptacular Attorney General Mark Brnovich has already sued along with other red state AGs to challenge this provision of the American Rescue Plan.

Julie Erfle, former executive director of Progress Now Arizona, now a fellow with the Flinn-Brown Arizona Center for Civic Leadership and Leading for Change, explains at the Arizona Mirror,
The GOP agenda: Reward the wealthy and defund the police:

Remember when Republicans were up in arms over the “defund the police” movement?

During the last election, Republicans did all they could to pin the “defund” label on Democrats of every stripe, even though the leader of the Democratic party, Joe Biden, said he wanted increases in police budgets, not reductions.

But that was so…2020. And it seems Republicans in Arizona have had a change of heart.

Gov. Doug Ducey and Republican legislators are eyeing a massive income tax cut for wealthy Arizonans, one that will shrink revenues for both state and local governments. The flat tax, as it’s known, will upend our current tax code, replacing progressive brackets with a single, flat tax.

And while that may sound like a fair way to tax individuals, in reality, it’s an incredibly regressive system that will result in lower- and middle-income Arizonans paying a much higher effective tax rate than wealthy Arizonans.

Currently, Arizonans pay anywhere from 2.59% to 4.5% in state income taxes, with wealthier Arizonans paying the higher percentage.

The proposed flat tax is 2.5% for all taxpayers, which would mean little change for low- and middle-income residents but a huge windfall for those at the top. In fact, 91% of the tax cut will benefit the top 20% of taxpayers, while more than 50% of the cut benefits the top 1%.

Merry Christmas, wealthy Arizonans.

But the tax cut won’t simply be a boon for the rich, it will also be a bane for cities and towns.

Local governments have limited means of raising revenues. They cannot implement their own income taxes and instead rely on what’s known as revenue sharing, which means they receive a portion of state income taxes [i.e., revenue sharing].

According to the Arizona Center for Economic Progress, the flat tax will decrease shared revenues by 27%, meaning cities and towns will lose millions in funding.  

We already know what happens when local governments lose a large chunk of funding. During the Great Recession, cities and towns had no choice but to implement hiring freezes and pay cuts for public safety while limiting hours and services at our parks and libraries and on public transportation.

Many of our local communities are just getting back to pre-recession times and hiring for positions left unfilled during the past decade. Do we really want to go back in time?

Of course, we know the real reason Republicans want a flat tax. This is how they exact revenge on voters who approved Prop. 208, the #InvestinEd tax increase.

In November, voters agreed that record wealth gaps were unacceptable, and the top 1% of taxpayers should pay their fair share to help our public schools compete with neighboring states and offer teachers professional wages.

But with the Republicans’ flat tax proposal, wealthy taxpayers wouldn’t simply be off the hook for Prop. 208, they’d actually receive another tax cut. 

Republicans claim they’ll make up lost revenue with monies from the general fund, something that will be easy during the next fiscal year because of one-time dollars the state is receiving through the American Rescue Plan

But what happens the following year? Or the year after that?

The flat tax will permanently slash $1.5 billion from state coffers, and history tells us that when Arizona’s revenues fall, so too does education funding.

During the last recession, the GOP-led legislature refused to allocate voter-approved inflationary funding to schools or make payment for capital expenses. Education groups, which had to sue the state over both issues, are still waiting on a settlement for the latter.

Our last financial crisis should have taught Republicans they cannot live in la-la land, believing revenues will continue to grow indefinitely and making reckless gambles on the state’s future with voodoo, trickle-down economic policies that have never worked

Our state cannot sustain this type of tax cut. Eventually, state and local governments will need to pull revenues from other sources, which will most likely mean sales and property tax increases. It might even mean another food tax.

We need a state budget that invests in the priorities Arizona voters have made clear they support, such as education and public safety. The flat tax will do the exact opposite.

“Ax the flat tax” from this GQP-only fantasy budget.

When national Republicans say that Democrats in Congress should not pass major legislation without bipartisan buy-in from Republicans, just remember that Republicans in the Arizona legislature never concern themselves with bipartisan buy-in from Democrats. They have been ruling this state as authoritarians with a boot on the neck of Arizona citizens for decades.