State Capitol News
9:07 am
Thu March 7, 2013

Tax Cut Vote

State lawmakers voted this week for a pair of tax cuts. But Arizona Public Radio's Howard Fischer reports there was also bipartisan opposition.

There are two provisions to the measure. One would give manufacturing businesses a much lower property tax on new buildings and equipment if they spend a certain amount on construction, hire new employees and pay at least half of them above the prevailing wage.

Representative Tom Forese said this is a perfect time for Arizona to be offering these kinds of incentives. He pointed to the decisions made in California to hike taxes there to balance that state's budget. "If we do nothing," Forese said, "we will get a number of those businesses here. There's no question about it. But could we do more? Can we punch above our weight? What can we do to get more than our fair share of businesses to come out here?"

The other half of the measure is completely different. It allows those who are self-employed to cut 2% off their taxable earnings when computing how much they owe in state income axes. Forese said the president and Congress did reach a deal to avoid the fiscal cliff at the end of last year. But they did not agree to keep in place the lower payroll tax rates that had been in effect for two years which had reduced the federal self-employment tax by 2 percentage points, to 13.3% of net earnings. the result is that the rate bounced back to 15.3% on January 1st.

Tom Forese said, "I think the issue that we're having right here is a negligent federal government that does not understand how fragile our economy is and how bad of an idea it is to raise taxes when business is about to have its comeback." He said this deduction, potentially worth up to $103 a year in lower taxes, helps make up some of that.

Representative Debbie McCune Davis said she could support the property tax break. But she questioned how lawmakers could vote now for lower income taxes that eventually would amount to a $58 million annual hit in state revenues. "We have no budget," she said. "We have not demonstrated yet that we're prepared to step up and take care of CPS. We aren't yet seeing numbers on support for education. We're seeing the governor's proposals but no legislative budget. I'm not prepared to give away $58 million without knowing where that money's coming from."

By contrast, Representative Eddie Farnsworth had no problem with the income tax deduction. His concern was changing the property tax system to give that big reduction in rates for new and expanded businesses. But that, in turn, means the fixed costs of cities, counties and school districts, which are dependent on property taxes, will end up being paid by someone else. And Farnsworth said while he's for low taxes, he's not for no taxes. "There are times when I think it's very appropriate. We have to tax to fund police and all those things. But generally, I think we tax too much. So yes, I'm generally in favor of tax reductions. But I don't necessarily want to offset it by reclassifying property," he said.

And then there was Representative John Kavanagh. He does not like either part of the measure. He said these kinds of targeted tax cuts are not the best way to stimulate the economy. "I think the best way to grow Arizona," Kavanagh said, "is to give broad-based tax relief to everybody. Let's start lowering the Arizona personal income tax to zero. Then the CEOs will want to live here because it's better for them. And they'll locate their companies here because they don't like long commutes."

The measure now goes to the Senate.