Arizona Tax Legislation Update

April 27, 2010

An Arizona tax bill is reportedly dead for now:

Several GOP senators joined Burns in voicing concern about the potential impact on the state budget deficit.

“I could not support what we have right here, digging a deeper hole,” said Sen. Linda Gray, R-Glendale.

Arizona is expected to face budget shortfalls for years to come because of the recession’s hit on state revenue.

…The latest version of the bill would cost the state $647.8 million in lost revenue in the 2017-18 fiscal year, the final year of its phase-in, according to an analysis by the legislative budget staff. It would delay and stretch out implementation from an earlier, costlier version that also included an individual income tax cut.

Introduced by Republicans, the bill had some tax cuts: reducing individual income tax rates by 10 percent, reducing the corporate income rate to 4.5 percent from 6.97 percent, eliminating the state equalization rate (property tax rate). Unfortunately, it also offered some tax gimmicks: job creation provisions and a “deal-closing fund” offered to out-of-state companies. Bad ideas. With a projected deficit of over $5 billion over two years, Arizona legislators have shown they cannot run a government. Why expect them to run an economy using selective tax incentives?

Arizona’s deficit is going to have to be solved by relying heavily on spending cuts. For long-term growth a good strategy is to move to lower rates and broader bases using the least distortionary taxes.

Arizona is also getting ready for a vote on a 1 percent sales tax increase. More on Arizona here.

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