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Updated Aug 22, 2013 - 1:08 pm

Arizona lawmakers to tackle income tax overhaul

PHOENIX — Arizona lawmakers slashed the state’s corporate tax rate in
2011, sliced other business and capital gains taxes in 2012 and just completed a
major overhaul of the state’s sales tax collection system.

Next up is a push to revamp the income tax system that majority Republicans say
is needed to help improve Arizona’s business climate and make it fairer to the
average taxpayer. A committee made up mainly of tax-cut champions from inside
and outside the Legislature has its first meeting Wednesday to come up with
proposals lawmakers can take up next year.

One of two Democrats on the committee is worried the project will turn into
another effort to institute a so-called “flat tax,” one that shifts the burden
from the rich to the middle class and poor. Such proposals cut top tax rates
paid by high-earners and sometimes raise the rates paid by lower-earners while
eliminating deductions.

“From the people on the committee, it’s clearly a stacked deck for people who
want the flat tax,” Sen. Steve Farley, D-Tucson, said Tuesday. “I think in
Arizona we’ve seen plenty of benefit go to the rich and we’ve seen the poor get
poorer, so I’m not clear that’s the way we need to go.”

A 2011 flat tax proposal was speeding through the Legislature before a state
analysis showed it drastically cut taxes for people making $100,000 and above
while dramatically raising taxes for lower earners.

“It’s really too bad that that exercise took place the way that it did because
now there’s a stigma associated with it,” said Rep. J.D. Mesnard, the Chandler
Republican co-chairing the committee. “I’m a pretty practical guy. We’re not
going to be doing anything that’s going to be increasing taxes on the poor.”

The committee announced last week by Senate President Andy Biggs and House
Speaker Andy Tobin, both Republicans, includes conservative GOP lawmakers that
have championed tax reform. It also includes a representative from the Goldwater
Institute, which champions lower taxes, and the Arizona Tax Research
Association, which lobbies for business interests and taxpayers at the

Republicans are eyeing money they may get from taxing Internet sales as a way
to cushion the hit to lower income earners by flattening the state’s tax

More than 37 percent of the state’s $8.4 billion in revenue comes from income
taxes. Revamping income tax rates means either shifting the burden elsewhere,
replacing them with new taxes or cutting spending.

Mesnard recently wrote a newspaper opinion piece about using the revenue
anticipated from new Internet sales tax collections to cut other taxes. Another
committee member, Goldwater economist Stephen Slivinski, said in an interview
that cutting income taxes would be easier if new Internet sales tax revenue is

Tobin said Tuesday the joint committee is not set up to put a flat tax in
place. He said previous tax cuts passed by the Legislature have helped the
state’s economy and the income tax is next on the list.

Farley suggested that cutting the state’s sales tax was a better way to
stimulate the economy.


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