PHOENIX — An analysis of the tax cut package being pushed by Gov. Doug Ducey and Republican legislators shows that the top 1% of Arizonans will get more than half of the $1.5 billion in permanent tax cuts.
At the other extreme, the study prepared by the Institute on Taxation and Economic Policy figures those earning less than $108,000 a year — meaning about 80% of all Arizonans — will be getting just 7 percent of the cash the state wants to permanently forego in its plan to create a flat income tax and help the richest Arizonans avoid the full impact of a voter-approved measure requiring them to pay more to help fund K-12 education.
The analysis comes as the public got its first look Monday at not just the tax cuts but the $12.8 billion spending plan that was crafted behind closed doors.
Some of the details already were known, ranging from additional cash to give pay raises to Department of Public Safety officers and civilian staff to increasing funding for gifted and special needs students.
But the package also contains a laundry list of some major policy changes that were never approved on their own. Instead, they are being put into a take-it-or-leave it package of budget bills, including:
- prohibiting state universities from requiring students or staff to show they have been vaccinated against COVID-19;
- dismissing charges of driving without license plates if the person gets them before a court date;
- allowing corporations to divert more of what they would owe in state income taxes to provide scholarships for students to attend private and parochial schools.
And no detail is too small: It even includes a list of which roads — and between which mile markers — the state will spend money to improve payment.
Lawmakers also are moving to strip Secretary of State Katie Hobbs of her ability to settle any lawsuits challenging state election laws. In fact, the language, buried in a budget bill, even precludes her office from hiring outside legal counsel of its own, leaving all decisions about future litigation to Attorney General Mark Brnovich.
The move comes after Hobbs sided last year with some of the groups that challenged the constitutionality of state election procedures.
Most recently, Hobbs urged the U.S. Supreme Court to strike down the 2016 law approved by the Republican-controlled legislature banning “ballot harvesting” which makes it a crime to take someone else’s voted ballot to a polling place. Brnovich and the Arizona Republican Party want the justices to uphold the statute.
But Rep. John Kavanagh, R-Fountain Hills, balked at calling it “payback.”
“Payback is a rather cynical spin word,” he said. “It’s brought to our attention the fact that she overstepped her bounds.”
Kavanagh said this isn’t political, even though Hobbs is a Democrat and Brnovich is a Republican.
He said the attorney general is charged with defending the state and its laws. And Kavanagh said it shouldn’t be up to anyone else to decide the legal merits of what lawmakers have approved.
Hobbs, however, said it’s clearly political, pointing to the fact that moving all litigation to Brnovich’s office runs only through June 30, 2023, shortly after her term ends.
But the dust-up between Hobbs and the Republican-controlled legislature is likely to get less attention than the central premise of the budget package: the massive — and permanent — cut in state revenues.
That plan creates a single 2.5% income tax rate for everyone. Now rates range from 2.59% for those at the bottom, meaning a married couple earning up to $53,000 a year, to 4.5% for those at the top, a couple with $318,000 in taxable income.
Potentially more significant, it effectively creates a 1% tax rate for the richest, meaning couples making more than $500,000 a year. That’s because it sets their maximum tax rate at 4.5%. And that includes the 3.5% surcharge on their incomes above that point, a voter-approved tax the legislature cannot repeal.
Legislative Democrats contend any excess should be funneled into needs like universities, K-12 education and even fixing state roads. Still, with the state having more money than it needs, there is a push to return at least some of that to taxpayers.
David Lujan, director of the progressive-leaning Arizona Center for Economic Progress, said if that’s going to happen the state should look at one-time rebates. He said the volatility of the economy — the state began the current fiscal year $1 billion in the hole — makes taking that much out of the revenue stream ill advised.
But for many Arizonans, the question will be who benefits.
Even gubernatorial press aide C.J. Karamargin said that about 60% of the tax cut would flow to the bottom 95% of the taxpayers, meaning the top 5% will divide up the other 40%. And he claimed that the bottom 20% of taxpayers receive the same relative tax cut as the top 1%.
Karamargin, however, offered no supporting documentation.
“You have our statement,” he said. “Our statement speaks for itself.”
By contrast, the Institute on Taxation and Economic Policy, using data from the Department of Revenue, had details. And they paint a somewhat different picture.
It figures the bottom 20% of taxpayers — those with incomes of less than $21,000 a year — will see a tax break of just $1. And for those in the second lowest 20%, meaning up to $40,000, ITEP figures a $7 tax cut.
The real money starts in the $64,000 to $108,000 range where ITEP figures the average tax cut would be $146. By contrast, Karamargin — again, with nothing to back his numbers — claims a family of four making $100,000 a year would get an extra $338 a year to spend.
By definition, the people who pay the most are the ones, because they owe the most, are who benefit the most from that flat 2.5% rate and the 4.5% total cap with any surcharge. But the ITEP study suggests they’re getting more than their fair share.
For example, it figures that those in the $40,000 to $64,000 income range will get a tax break of $66, equal to 0.1% of their income.
The 4% of Arizonans earning from $224,000 to $512,000 a year will see an average $2,644 tax break equal to 0.8% of their income. And ITEP figures those above that — the top 1% — will get an average break of nearly $26,000, or 1.8% of their income.