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Legislature begins its work on 2021-22 state budget, including the largest tax cut in history

Posted at 6:54 PM, May 24, 2021
and last updated 2021-05-25 00:03:52-04

PHOENIX — It’s one of the largest state budgets in history, adding up to just over $12 billion. It also includes the largest permanent tax cut in state history. $1.5 billion that is targeted to go mainly to the top one percent of Arizona’s wage earners.

For the first time in recent memory, there are warnings from both Republicans and Democrats the permanent tax cut is too much. “It would not only be tying the hands of future legislatures, but it would tie the hands of the future governor. I mean it would tie the hands of cities and towns,” said State Representative David Cook of Globe. “I’m all for tax cuts and I think if you set aside the flat tax, there’s about $864 million in tax cuts already for Arizona families and people,” Cook said.

Governor Ducey says his flat tax proposal is needed to keep Arizona economically competitive. Ducey estimates a flat tax will help create 550,000 new jobs, enough to offset the tax cut. But Representative Cook is not so sure. “The estimates the governor said are 550,000 jobs other estimates are we will need almost 1.5 million jobs to offset the tax cut revenues for the future. I got one question, where’s the water going to come from?”

Big cities and small towns will be hard hit if the legislature approves the permanent tax cut.

Mayor Kate Gallego warned it will cost Phoenix $82 million annually. State law prohibits cities from collecting income taxes.

“We’ve estimated we would lose $82 million. That’s the kind of loss people in our city feel,” Gallego said. “They’ll have slower response times if they call 9-1-1 if they have a fire, they’ll see fewer librarians to get books to their kids. $82 million is such a significant cut it will really knee cap the city.”

The state of Kansas tried a flat tax in 2012. It eliminated taxes on business income for owners of almost 200,000 businesses and cut individual income tax rates. What was supposed to be a boom for the state’s economy had the opposite effect.

By 2017 state revenues dropped. Spending on education and infrastructure was cut, and the legislature ended up rolling back the tax cut, overriding a governor’s veto in the process.

“It decimated their economy,” said David Lujan, director of the Arizona Center for Economic Progress. “Within a couple of years, they had drastic budget cuts to their public education system and other state needs.”

On Twitter Monday, the Governor was rallying support for his budget. He promised lots of new spending for state police, public education, roads, and bridges as well as the largest tax cut in Arizona history. But in his office at the legislature, Representative Cook was looking at the printout of the budget he will have to vote on. He’s got questions.

“What is going to happen after the year 2024,” Cook said, “because we are backfilling tax obligations with general fund dollars. There’s something wrong with that.”

Cook is not the only Republican to voice concern about the flat tax. Former Governor Jan Brewer is opposed to making the tax cuts permanent. She wrote an op-ed in the Arizona Republic arguing the state needs to pay off its debt before it considers it. State Senator Paul Boyer has concerns about the cuts to cities and towns and the impact it will have on police and fire protection.

No Democrat supports the flat tax, so Cook and Boyer must vote for the flat tax or it will fail. The legislature is hoping to end the session before Memorial Day.