Senate panel OKs bill to flatten Arizona income tax

Posted: 5:29 PM
Last Updated: 43 minutes ago
By: Associated Press

PHOENIX - A "flat tax" bill to rewrite the state individual income tax is nearing the finish line at the Legislature, setting the stage for changes that would have the Arizona's wealthiest taxpayers paying less while nearly nine of every 10 Arizonans pay more.

The Senate Finance Committee approved the Republican-sponsored bill on a 4-2 party line vote Thursday. The House has already approved a version of the bill.

Major changes in the bill include eliminating the standard deduction, dependent exemptions and most other state deductions while flattening the current five rates into one lower rate of 2.13 percent. Current rates range from 2.59 percent to 4.454 percent depending on income levels.

The changes would be phased in over three years starting in 2013. It would not affect federal income tax paid by Arizonans.

As passed by the House, the bill would have produced an additional $50 million of annual revenue for the state. However, the Senate committee amended the bill so that it would not significantly add or subtract from total state revenue, according to an analysis by the legislative budget staff.

A legislative budget staff analysis indicated that taxpayers with federal adjusted gross incomes below $100,000 generally would pay more state income tax under the bill while those with higher incomes would save money. Taxpayers with incomes below $100,000 account for 88 percent of state income tax filers, according to the analysis.

"There are winners and losers in this proposal," said Sen. Jack Jackson, D-Window Rock.

Republican Rep. Steve Court of Mesa said average tax increases under his bill wouldn't exceed $200.

"There's not going to be an excessive tax increase," Court said.

The goal is to simplify the tax system "so the government is not incentivizing how you spend your money," Court said. "It's a policy bill. It's not a revenue bill."

Sen. Paula Aboud, D-Tucson, said $200 "to some people is the decider between food, medicine and a whole lot of things."

"This bill is insulting to the people that are struggling when they're losing jobs and they're losing their homes ... and it's just another $200," she said dismissively.

The committee heard words of cautions from tax accountants who said the implications of the changes hadn't been adequately studied but support from the Goldwater Institute's chief economist, Byron Schlomach.

"These various deductions and such all have very often hard to see but profound economic effects," Schlomach told the committee. "The best thing to do is keep things as flat and even as possible and not distort people's decision-making with tax policy."

The Children's Action Alliance's president Dana Naimark earlier Thursday denounced the bill as "a shift in taxes from the rich to the middle masquerading as tax simplification."

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