Arizona House Rejects State's Tax Cut Plan
By Howard Fischer
Capitol Media Services
PHOENIX -- A lone Republican lawmaker united with House Democrats Monday to quash at least part of a proposal for sharp cuts in taxes for the most wealthy.
Rep. David Cook of Globe said he is not buying the arguments by Gov. Doug Ducey and GOP leaders that permanently cutting $1.9 billion in income taxes would lead to future economic growth. He said that was borne out by the collapse of revenue in Kansas following a sharp cut in that state's income taxes in 2012.
House Majority Leader Ben Toma, R-Peoria, responded, in essence, that we're not in Kansas.
He said the revenue cuts in Kansas were sharper. Then there's the fact that Arizona's economy is growing and people and businesses continue to move here.
"We have excess revenues, not declines,'' Toma said. And while he was unable to cite any projections of how that would work, the majority leader insisted it will happen.
"Historically, that's been proven in other cases,'' Toma said.
Cook, however, was unwilling to buy that assumption on faith. He said it is wrong to make such a major change in tax policy without looking closer at the impact -- and in a proposal that never got a public hearing.
"Doesn't that bother you?'' he asked.
"Lots of things bother me,'' Toma responded. "Cutting taxes does not bother me in the least.''
Cook has said he will support some form of tax cuts. But not this package.
One part would create a single 2.5% income tax rate. That compares with the current four tiers which run from 2.59% on taxable income up to $53,000 for married couples, with a top rate of 4.5% on amounts above $318,000.
The other would impose an absolute cap of 4.5% on the total income taxes of any individual. As that includes the voter-approved 3.5% surcharge on incomes above $500,000 for couples, it would effectively mean a 1% tax on all other earnings.
Without those two changes, the top tax rate on the most wealthy is 8% -- the current 4.5% top bracket plus the 3.5% surcharge.
Toma said it makes sense to focus tax relief on those at the top of the income scale.
"They're the ones that tend to make the jobs and create the economic conditions that lead to economic improvement for the entire state,'' he said. That drew a sharp retort from House Minority Leader Reginald Bolding, D-Laveen.
"The reality is, without these working-class people there wouldn't be jobs, there wouldn't be an economy, there wouldn't be people making sure that people in Arizona have the ability to stand up and to be able to do the things that they want to do here in Arizona,'' he said.
The failure of the House to get the requisite 31 votes leaves not just the tax cut but the entire $12.8 billion budget in limbo. So House GOP leaders chose to hut down until Thursday, giving them a chance to reassess the package to see how it might be possible to gain the majority in the 60-member chamber.
But time is running out: The state needs a new budget adopted when the new fiscal year begins July 1.
House Speaker Rusty Bowers, R-Mesa, said the next step is to reach out to Cook and find out exactly what he needs to vote for the package. But he also said that Cook needs to recognize that if the plan fails, he loses things that he wants, ranging from $200 million to find new sources of water to $800 million in debt relief.
It's even more complex than that.
House Majority Leader Ben Toma, R-Peoria, says anything that either adds to spending or trims the tax relief has the potential of losing other GOP votes. Put simply, he said, it's like squeezing a balloon: Compress at one end and "it can bend out of shape on the other side.''
Some of that already is happening.
Rep. Jake Hoffman, R-Queen Creek, who supports the $1.9 billion in tax cuts, thinks there are things in the package that are too generous. He specifically wants to quash the proposed increase in unemployment benefits.
Arizona law entitles those who lose their jobs through no fault of their own to collect up to 50% of what they were earning. But state law caps that weekly payment at $240, the second lowest in the nation; only Mississippi pays less.
The package would take that figure to $320 a week. That, said Hoffman, is not acceptable.
"Taxing small business to pay potential employees more money to not work is just bad policy, plain and simple,'' he said.
"We don't need more welfare,'' Hoffman said. "We need more people out there pursuing jobs that are out there in the marketplace right now.''
But Rep. Regina Cobb, R-Kingman, who chairs the House Appropriations Committee, said Hoffman can't get what he wants. She said the benefits increase is part of the deal negotiated not just with Senate Republicans but also with Ducey.
Bowers said the same is true of the entire budget package: It has to be accepted by a majority of the House, the Senate and the governor.
Ducey for the time being is sticking with his bid for the flat tax and the cap on taxes on the wealthy.
"It's important to protect Arizona's job creators from a tax increase,'' said press aide C.J. Karamargin. "We believe our proposal is the sound one, the best one, the one that makes the most sense.''
Meanwhile the Senate, which also comes back Thursday after a two-week recess, is having its own problems lining up the necessary votes among the 16 Republicans there.
Sen. Paul Boyer, R-Glendale, continues to hold out for an agreement that the tax-cut package won't harm cities. That's because they get 15% of what the state collects in income taxes, part of a 1972 deal where local communities gave up the right to levy their own income and excise taxes.
GOP leaders did agree to boost that to 17%. But city officials say that still leaves them short of where they are now.
And Boyer remains concerned that lawmakers could come back at some future date and trim the cities' share.
He has reason to be suspicious.
Boyer pointed to a 2005 deal between Democratic Gov. Janet Napolitano and the Republican-controlled legislature: She would support their demand for a 10% cut in income taxes in exchange for state funding of full-day kindergarten.
Only thing is, when the recession hit, the GOP lawmakers took the school funding away. But Boyer noted that the tax cut remains in place. And he doesn't want a repeat when it comes to city aid.
"There's nothing to prevent them next year if the economy crashes to say, 'Sorry, we don't have the money, we're going to go right back to 15%,' '' he said.
Boyer also has some spending priorities.
He wants additional cash in the "new economy initiative'' designed to help universities train workers for high-tech and high-demand jobs. Boyer said the plan to grow Arizona's economy through things like tax cuts will work only if the state has the workforce to fill those high-paying jobs.