AZ GOP flat tax proposal will raise average Arizonan’s income taxes

Posted by AzBlueMeanie:

The GOP insane clown posse leadership is asserting that their "flat tax" income tax proposal is "revenue neutral." A legislative report predicts that the flat tax will actually result in nearly a half billion dollar reduction in state income taxes in 2012 if enacted. Tax issues stall talks in House on budget

This is how the GOP insane clown posse leadership can avoid the application of the Arizona Constitution Article 9, Section 22, the infamous two-thirds super majority vote requirement for any "net increase" in tax revenue from either raising tax rates or reducing tax exemptions or deductions.

This tax cut is largely due to the loss of tax revenue from upper income earners making more than $150,000 year. For the vast majority of Arizonans, however, your Arizona income tax will actually increase. The legislative plan could cut the top rate by 38 percent, while raising the bottom rate 8.1 percent. Howard Fischer explains why Flat-tax proposal for state drawing flak:

A flat-tax plan touted by backers as hurting no one actually could result in higher taxes for many Arizonans.

HB2653 would impose a 2.8 percent state income tax. That would replace the current graduated system which has rates ranging from less than 2.6 percent to more than 4.5 percent.

It also provides a single deduction of $10,000 for individuals – $20,000 for couples – to replace various state deductions.

But the legislation, which would take effect in 2012, scraps existing laws which use an individual's federal adjusted gross income as the starting point for computing state income. Instead it uses the total gross income as a base.

The difference? A lot.

For example, contributions made by individuals to health savings accounts now come off what people earn, making it not subject to federal or state tax. Under this law, the state would tax that money.

The same is true for contributions made to qualified retirement plans like 401(k) plans and individual retirement accounts.

Also taxable in Arizona would be deductions students now get for tuition and fees as well as the interest paid on student loans.

Some people who are divorced also will get hit in an unusual way.

Right now whoever has to pay alimony get to deduct that amount from taxable income. That is based on the premise that the former spouse getting the checks is paying income on it.

But the way HB2653 is worded, the person paying the alimony will now have to pay tax on it – as well as the other one receiving it.

It also has a particular hit on those who are self-employed.

These people pay both the employer and employee half of federal social security taxes. But to make up for that, the individuals get to deduct that other half from their federal taxable income.

HB2653 would make that subject to state taxes.

Similarly, the deduction that now exists for the health insurance costs of a self-employed person also would disappear.

House Speaker Kirk Adams (R-Mesa) said making these items taxable under state law is what allows Arizona to have a flat tax rate as low as 2.8 percent. Continuing those exemptions, Adams said, would mean a higher flat tax.

Sen. John Huppenthal, R-Chandler, said wiping out deductions is "always the argument'' that has been raised by foes of a flat tax. But Huppenthal said he is less concerned with details like this than the overall impact of the plan.

So what we really have here is a tax cut for the wealthy and a redistribution of the tax burden downward to lower income earners who will be paying 8.1% more in income taxes. This will also negatively impact the self employed and small business owner who will lose the tax credits and deductions they have come to rely upon. (This hurts small businesses that are the engine of job creation.)

The GOP insane clown posse can get away with this without the two-thirds super majority vote required for raising taxes because the hefty tax giveaway to the most wealthy Arizonans will result in a "net loss" of income tax revenue to the state.

If Arizona is going to switch to a flat tax income tax, this tax proposal rightfully should be referred to the ballot to let the voters of Arizona decide whether they want to pay more in income taxes so that Richie Rich can pay far less in income taxes. It should not be decided in haste by a bare minimum of ideological extremist Republicans voting for this bad idea (in addition to the "TABOR-Lite" bill, SCR 1006, which Governor Brewer and Sen. Russell Pearce want referred to the 2010 ballot.)

These GOP ideological extremists are trying to render Arizona incapable of meeting its most basic needs in the future. They are trying to drown the baby in the bathtub.