There has been vague media reporting since the Arizona legislature has been in session that there is an effort to rewrite Arizona’s tax code into a “flat tax” as part of this year’s state budget process.
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.
The vague media reporting on this flat tax proposal to date resembles something like this:
“Republican Rep. Ben Toma is leading efforts in the House to revamp the tax code. His proposal eliminates the current graduated tax brackets and replaces them with a flat 2.5% tax on all income levels. Under the current progressive tax structure, taxes start at 2.59% on the first $26,500 of income and rise to a maximum of 4.5% on income over $159,000.”
Finally, Howard Fischer substantively reported this week, Flush with cash, Arizona lawmakers contemplate a flat tax:
With state revenues running $1 billion ahead of expectations, Republican lawmakers are looking at compressing all of the state’s income tax brackets down to a single rate.
The proposal being circulated among the GOP majority calls for a flat 2.5% tax rate within three years. By contrast, Arizona now has a progressive rate structure, with residents paying rates as low as 2.59% on taxable income of up to $53,000 for married couples and as high as 4.5% on earnings above $318,000.
But that’s only part of the package.
Legislators are weighing yet another cut in the assessment ratio of businesses. That is the figure used to compute their property taxes. [Yet another corporate welfare tax giveaway.]
And there’s still a plan on the table that would let some high-income families escape the 3.5% income tax surcharge approved by voters to help fund education [Prop. 208].
Lawmakers have been moving in the direction of a flat tax for years.
Arizona until recently had five brackets, with top rates in the 1990s as high as 5.17%. Now the state has four brackets.
House Minority Leader Reginald Bolding, D-Laveen, acknowledged that, at least on the surface, there’s nothing inherently unfair about a flat tax: Everyone pays the same percentage of what he or she earns.
Dude, you need to do your homework.
Leaving aside the policy question of whether the revenue should be invested in education and infrastructure, Bolding said the more important question is whether it’s equitable. And that, he said, needs to be part of a public — and transparent — discussion, rather than something that likely will be formally rolled out just 24 hours before it is voted on.
What I said at the top of this post.
Rep. John Kavanagh, R-Fountain Hills, said he doesn’t see an issue.
“A single rate is fair to everybody,” he said. “Rich people pay more than poor people with a single rate, just not as much as with a so-called progressive rate.”
As always, he is full of shit. As I posted about the last time this damn fool flat tax proposal was attempted, and defeated, this is “A really BAD tax policy previously rejected several times even by our Republican controlled Arizona legislature. The GOP flat tax fantasy was pushed in 2009 by then-House Speaker Kirk Adams, who later served as chief of staff to Governor Ducey, and whose name is being floated as a potential candidate for governor in 2022. AZ GOP flat tax proposal will raise average Arizonan’s income taxes, It was floated again in 2011 by Rep. Steve Court. Tea-Publicans believe in ‘flat tax’ fantasy. Luckily, the ‘Flat Tax’ pulled from a final vote – for now (both bills died). In 2011, former state Senator Paula Aboud (D-Tucson) organized “Ax The Flat Tax” Forums around the state that turned public opinion strongly against the flat tax. This public education campaign may now have to be revived.
Sen. J.D. Mesnard, R-Chandler, long a proponent of a flat rate, said what’s being discussed isn’t a true “flat tax.”
“If it’s a true flat tax, then it starts from the first dollar earned,” he said. “There’s no exemptions or deductions, there’s no write-offs.
But Mesnard pointed out that Arizona has a whole list of deductions and exemptions from income, both on a per-person basis in the household as well as additional exemptions for those over 65 and the blind.
Plus even people who do not itemize on their state tax returns get a standard deduction of up to $24,400 for a married couple filing jointly. That means most people at the bottom of the income scale have no taxable income against which to compute the tax rate.
Shades of “Lucky Duckies” in a 2002 series of Wall Street Journal editorials to refer to Americans who pay no federal income tax because they are at an income level that is below the tax line (after deductions and credits).
And there’s Mitt Romney’s “47 percent” of people who pay no income taxes from 2012. The conventional wisdom is that “47 percent” comment hurt him so much because it played directly into the stereotype of Romney as an out-of-touch rich guy. And now we have Sen. J.D. Mesnard.
And there is the possibility of additional alterations to make the package more palatable, including a $50 per dependent credit against taxes owed, up to $200 per family.
The federal COVID-19 relief bill gives families up to $3,600 per child as a tax credit: Under the legislation, the American Rescue Plan, American families can claim up to $3,600 per child under age 6 and $3,000 for children up to age 17 for one year to help combat the economic damage of the pandemic. House Democrats are looking to make the tax change permanent. The current tax credit is up to $2,000 per child.
“There’s talk of giving some extra bonuses for dependents to cushion the differences,” Kavanagh said.
“That’s in the mix,” he said. “Nothing’s finalized yet.”
The debate over cutting taxes goes beyond the structure.
Sen. Paul Boyer, R-Glendale, pointed out that cities now get 15% of what the state collects in income taxes. He figures the amount of foregone revenue through the flat tax proposal would translate out to about $225 million a year less to cities.
And making it up is no easy task. Boyer cited a 1972 voter-approved amendment to the Arizona Constitution where cities gave up the right to levy their own income and luxury taxes in exchange for revenue sharing.
More concerning, he said, is the effect the tax cuts would have on public safety.
In Glendale, one of the cities he represents, those expenses make up 66% of the total municipal budget; for Phoenix it’s 71%.
And the time, Boyer said, could not be worse.
“This is a serious ‘defund the police’ moment,’’ he said. “Because of the overwhelming amount that does go to public safety — and this would be a significant hit to cities and towns — I just can’t support it.’’
House Majority Leader Ben Toma, R-Peoria, said the question of revenue sharing is an “ongoing discussion.”
“I get it,” Toma said. “Nobody likes to lose revenue.”
But he made it clear he doesn’t think the cities would be as hard hit as they claim.
First, Toma said, is that the phase-down in the tax rate would occur over three years. And with revenue sharing based on state collections from two years prior, that means the full effect won’t be felt until 2028.
Anyway, Toma said, there are counter arguments.
One is that Arizona agreed to take advantage of a U.S. Supreme Court ruling which allows states and cities to impose their own sales taxes on purchases made by Arizonans from online sites. Toma estimated that between what cities collect on their own and their share of extra state revenues, that comes close to $200 million.
At least part of that, he said, is related to COVID and the fact that people moved more of their purchases online. But Toma said the economy already was headed in that direction, pandemic or not.
“That will continue to grow,” he said.
All that still leaves the question of $1 billion or more in tax cuts is sustainable on a long-term basis what with a current $11.6 billion budget.
In some ways the state economy has been artificially buoyed by federal COVID dollars. In fact, at one point Gov. Doug Ducey gave $400 million of that to state agencies but then reduced their state funds by $300 million.
Most Arizonans also got checks from the federal government which contributed to spending.
And then there’s the fact that Arizona has a history of times of boom and bust.
But Toma doesn’t believe the next downturn will be as bad as the prior recession — the one before what happened during the pandemic — based at least on the fact that the state’s economy is not as dependent on home construction.
Plus Arizona has $1 billion in a “rainy-day fund.”
And Toma shares a philosophy with many Republicans.
“I think its actually worse to grow government and to grow agencies and to provide all kinds of cool programs, and then you have to cut them when people are going to need them the most in the future,” he said. “The cuts are going to hurt worse.”
And let’s not forgot that Arizona Attorney General Mark Brnovich is suing the U.S. Treasury Department over a provision in the American Rescue Plan which bars states from using the federal relief funds they get to directly or indirectly cut taxes instead of using the funds to restore previous funding cuts. Arizona AG sues over tax cut ban in Biden virus aid law.
The frivolous lawsuit came despite Treasury Secretary Janet Yellen telling Brnovich in a Tuesday letter that nothing in the law prevents Arizona from cutting taxes. What it does bar is using the $4.8 billion Arizona is getting from the American Rescue Plan Act to backfill those revenue cuts with the federal money.
“If states lower certain taxes but do not use funds under the act to offset those cuts — for example, by replacing the lost revenue through other means — the limitation in the act is not implicated,” Yellen said in the letter.
Governor Doug Ducey initially campaigned for governor in 2014 on a platform to reduce income tax rates to “as close to zero as possible.”
Republican lawmakers who control the Legislature are considering a massive revamp of the tax code, at Ducey’s urging. His January budget proposal contains a $200 million per year tax cut that would rise to $600 million in three years. But with a budget surplus estimated to top $1 billion, state Senate and House Republicans are looking way beyond that number.
What they are not looking at are ways to restore funding cuts made to critical public programs since the Great Recession in 2008. This is the old GQP trick of lowering the baseline, and then using any increase in state revenues to give corporate welfare tax cuts to corporations and the wealthy. Budget cuts become permanent.
As I have explained before, Arizona does not actually have a “surplus,” because the legislature is simply refusing to fully restore funding levels to pre-Great Recession (2008) levels, some 12 years ago. This is tax dollars which should be used to restore funding to essential government services like education, not another corporate welfare subsidy and tax cuts for wealthy Republican campaign contributors. Republicans are the reason why we can’t have nice things. See, ARIZONA’S UNRESTORED BUDGET CUTS:
Arizona made some of the steepest cuts in the nation, is one of only a handful of states still cutting today, even in a steadily improving economy.
Did you know our state has cut $4.56 billion dollars to public schools since 2009? And those cuts haven’t been restored.
And the legislature is trying to “claw back” the taxes on the wealthy in the Invest In Ed citizens initiative (Prop. 208) which voters approved. Bill would cut voter-approved education funds, school supporters say:
Education advocates oppose Senate Bill 1783, which would allow some business owners to avoid paying the higher taxes Proposition 208 levies on Arizona’s wealthiest residents.
Proposition 208 levies a 3.5% surcharge on the current rate of 4.5% on income exceeding $250,000 for single earners or $500,000 for couples. But SB 1783, sponsored by Sen. J.D. Mesnard, R-Chandler, would circumvent the surcharge by creating an alternate tax category.
Why is it that for every bad bill in the Arizona legislature, this asshole J.D. Mesnard’s name is somehow associated with it?
Call you state representatives and tell them to oppose this damn fool “flat tax” proposal, and to instead restore the funding cuts made over the past 12 years. No more corporate welfare giveaways and tax cuts for the wealthy.