Some Arizona Lawmakers Want To Eliminate Income Tax Brackets, Adopt Single 2.5% Rate

By Jill Ryan
By Howard Fischer, Capitol Media Services
Published: Wednesday, April 14, 2021 - 10:22am
Updated: Wednesday, April 14, 2021 - 12:15pm

With state revenues running more than $1 billion ahead of expectations and better times forecast, Arizona Republican lawmakers are looking to compress all of the state's income tax brackets down to a single rate of 2.5% by 2024. But not all Republicans are in agreement. 

Cities get 15% of what the state collects in income taxes. Republican Sen. Paul Boyer points out that reducing taxes could mean about $225 million less, a year, for cities, and it would likely defund public safety.

“This would be a significant hit to cities and towns, I can't support it, at least in its current format," Boyer said.

House Majority Leader Republican Ben Toma, says the question of revenue sharing is an "ongoing discussion"

"I get it," Toma said. "Nobody likes to lose revenue."

But Toma says the phase-down in the tax rate would occur over three years. And with revenue sharing based on state collections from two years prior, that means the full effect won't be felt until 2028.

Toma also says there are counter arguments. One is that Arizona agreed to take advantage of a U.S. Supreme Court ruling which allows states and cities to impose their own sales taxes on purchases made by Arizonans from online sites. Toma estimates that between what cities collect on their own and their share of extra state revenues, that comes close to $200 million.

Arizona currently has a progressive rate structure where residents pay as low as 2.59% on taxable income, and as high as 4.5% for high-income workers who earn more than $318,000 a year. 

There is also partisan debate on whether the proposed flat rate is equitable.

Democratic House Minority Leader Reginald Bolding, acknowledged that, at least on the surface, there's nothing inherently unfair about a flat tax: Everyone pays the same percentage of what he or she earns. But the question on whether it's equitable, he says needs to be part of a public — and transparent — discussion, rather than something that likely will be formally rolled out just 24 hours before it is voted on.

Republican Rep. John Kavanagh says he doesn't see an issue.

"A single rate is fair to everybody," Kavanagh said. "Rich people pay more than poor people with a single rate, just not as much as with a so-called progressive rate."

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