State Capitol News
9:30 am
Tue March 15, 2011

Lawmakers Attempt to Revamp State Income Taxes Could Create a Financial Hit for Some

Phoenix, AZ – Right now the state, like the federal government, has a graduated
income tax rate. It's nowhere near as broad as the federal tax
system, ranging from 2.6 percent at the bottom and topping off at
just slightly more than 4.5 percent. The measure approved by the
House Monday would create a single tax rate of 2.08 percent. Rep.
Steve Court said that's only fair. But that's only part of the
plan. It also would eliminate all the deductions and exemptions -
- the things now used by Arizonans to reduce their taxable
liability. Rep. Steve Farley cited a study of six families with
income ranging from $17,800 a year to nearly $250,000. Farley
told his colleagues that in each case, the accountant who did the
study found that the taxpayers' liability increased.

(So if you're voting for this bill, you are voting for a massive
tax increase on every household in the state of Arizona according
to calculations by an accountant who k nows what he's talking
about. So I suggest you think carefully about that before you
decide to cast your vote and decide whether or not you want to do
it.)

But Rep. Justin Olson said the accountant took his examples from
real-life taxpayers, probably the kind of taxpayers who would
need an accountant because they've got lots of deductions.

(What this bill will do will eliminate deductions. It will
simplify the tax code. So you will have individuals in each
taxing bracket who will see increases, those individuals who are
doing the best job of taking advantage of the tax code that we
currently have.)

Conversely, Olson said that Arizonans who do not have things like
huge interest payments on their mortgages and large charitable
deductions will end up with smaller tax bills. And Court added
that the measure was crafted to be revenue neutral, resulting in
no more or less cash flowing into the state treasury than the
current system. He said what that means, by definition, is while
some people will pay more, others will pay less. The change will
have one other effect. Under the current tax code, those standard
deductions and exemptions pretty much mean that a family with an
income of about $15,000 a year has no state tax liability. This
legislation would require everyone to pay taxes. Court explained
after the vote he believes that's only right.

(Because they're using state services. It's a nominal amount. And
they would have greater interest in votes in the future that
somebody's proposing to raise taxes. And now they'll be
affected.)

Using the example of that family, whose $15,000 income puts them
below the federal poverty level, their tax bill under Court's
plan would be $312 a year. And with a flat tax, Court said,
everyone will pay the same share of his or her income. The 40-18
vote sends the legislation to the Senate. For Arizona Public
Radio this is Howard Fischer.