Flush With Covid Dollars, Republican Legislators Contemplate a Flat Tax

It seems State Senator Vince Leach (R-LD11) got it wrong when he confirmed that Arizona might face a $1.1 billion deficit. But Governor “one scoop or two Ducey” decided that after receiving COVID money ($1.86 billion in federal coronavirus relief funding), Arizona cities, towns, and counties would get only $441 million of that $1.86 COVID money.

“These locales are only getting a slice of the $1.86 billion because it’s not clear what the future holds, and the state doesn’t want to dole out all of its aid prematurely,” Ducey said.

Now flush with all this COVID cash and with state revenues running $1 billion ahead of expectations, the GOP has decided now is the time to compress the state’s income tax brackets down to a single rate of 2.5%.

Progressive tax rates

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. Rep. John Kavanagh (R-Fountain Hills) said he doesn’t see an issue. “A single rate is fair to everybody, and rich people pay more than poor people with a single rate, just not as much as with a so-called progressive rate.”

But 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 to about $225 million a year less to cities. 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%.

More casinos and slots for tribes

Not to be deterred, Gov. Ducey has a plan for this eventual shortfall in state revenue. The plan includes more casinos, giving Arizona tribes at least four new casinos with the possibility of one in Tucson. The casinos come with more slot machines, more games of chance, and the right to take wagers on a whole new category of professional and amateur sports, thereby increasing state revenue. But wait, there’s more.

A compact signed Thursday by tribal leaders and Gov. Doug Ducey shows there could be at least an additional nearly 6,300 video gaming terminals allowed in the state to attract Arizonans to reservation casinos. That is on top of the 13,640 the state Gaming Department says are in operation. There already are close to 20,500 already authorized, with the balance not yet in use. Now a brief history of how we got here on Casio gambling.

Fife Symington, governor at the time, was initially opposed to tribal gaming. But he eventually negotiated the legally necessary compacts. In 2001, however, a federal judge concluded that slot machines, blackjack games, and keno contests are illegal in Arizona, even for charities. That led to a measure being approved by voters in 2002 to allow tribal gaming specifically.

In it, tribes offered the state a share of the profits. In exchange, the tribes would have the exclusive right to operate casino gaming, though certain forms of charity gambling would be allowed. Jane Hull, then governor, assured voters that “the deal would not result in any new casinos in the Phoenix area.”

It was only later discovered that a provision had been inserted allowing new casinos on any property that a tribe acquired due to settling a claim with the federal government. And that applied solely to the Tohono O’odham Nation, which had been compensated after a federal dam project flooded tribal property near Gila Bend. Years of litigation involving the state and the city of Glendale all ended in favor of the tribe. The city eventually cut a financial deal with the tribe, dropping its legal disputes in exchange for $25 million over the next two decades

It seems strange that Arizona Republicans would want to increase the tax revenue on tribal gambling (realizing that most casino gamblers on tribal land are middle and low-income taxpayers.) Furthermore, because America’s biggest corporations paid no income taxes on their profits last year, the GOP believes that lower-income earners should pay more with regressive taxes. And in Arizona, that amounts to 13% of income for the lowest 20% of income earners.

I wonder if Gov. Ducey or Arizona Republican legislatures realize that, by using COVID money now that next year, because of the reduction in state revenue and a shortfall in the budget, they won’t have COVID money to bail them out?

Janet Yellen, former Chairman of Federal Reserve and now US Secretary of the Treasury, recently said: “that there should not be in a race to the bottom while giving tax cuts to corporations.” I think Arizona and the other 49 states should heed the secretary’s advice.