State Capitol News
4:03 pm
Fri June 26, 2009

Flat tax included in budget compromise

Phoenix, AZ – Republican legislative leaders have agreed to ask voters to hike
state sales taxes as part of a deal to balance the budget. But
the trade-off would be creating a flat state income tax for individuals.

Brewer wants a temporary one-cent tax hike as an alternative to
deeper cuts to state services. That has been a hard sell among
Republican legislators who argue that higher taxes hurt
businesses. So the trade-off is a flat tax. Right now Arizonans
making at least $150,000 a year pay more than 4.5 percent,
versus lesss than 2.6 percent for those with income of less than
$10,000. The plan would simplify that into a single rate, likely
in the 3 percent range. House Speaker Kirk Adams said that would
be good for business.

(Most businesses in Arizona are taxed at the personal income tax
rate. Most businesses are filed as sole proprietorships,
partnerships, LLCs.)

Adams said the plan protects the poor by exempting the first
$10,000 in earnings from any tax at all. As to that sales tax,
Senate President Bob Burns acknowledged most Republicans don't
like it. But he said the $600 million in cuts lawmakers have made
so far won't balance next year's budget.

(We need to put that out there for the voters. If they pass a tax
increase, obviously we'll have more revenue. If they don't, I
think that sends a pretty strong message to the Legislature that
we're going to have to make significant reductions.)

Estimates are the tax hike could raise up to $1 billion a year.