Arizona House rejects flat-tax plan by one vote

By Howard Fischer, Capitol Media Services in Tucson.com.

PHOENIX — A lone Republican lawmaker united with House Democrats Monday to quash at least part of a proposal to sharply cut taxes for the wealthiest Arizonans.

Rep. David Cook, R-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 cited 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, and that Arizona’s economy is growing and people and businesses continue to move here. “We have excess revenues, not declines,’’ 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 through this proposal, which never had 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.

Rep. David Cook, R-Globe, argued Monday against a proposal by Republican leaders that would limit the amount of income taxes paid by the most wealthy.

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 for earners in that category.

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,” he said.

The failure of the House to get the requisite 31 votes leaves not just the tax cut but the state’s entire $12.8 billion budget in limbo. House GOP leaders chose to shut down until Thursday, June 10, to reassess the package and see how it might be possible to gain the majority in the 60-member chamber.

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 so as to vote for the package. But he also said Cook must recognize that if the plan fails, he loses things he wants, including $200 million in spending to find new sources of water.

Anything that either adds to spending or trims the tax relief has the potential of losing other GOP votes, Toma said. 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 a 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 behind Mississippi.

The package would take that figure to $320 a week. Hoffman said that’s 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. 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: It must be accepted by a majority of the House and the Senate and by the Republican 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 his press aide C.J. Karamargin.

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, who receive a share of the state’s income taxes because they cannot levy their own.

Also, on the spending side, Boyer wants more money put into the “new economy initiative’’ designed to help universities train workers for high-tech and high-demand jobs.

See why faith leaders object in this article from last week