The measures passed the House Ways and Means Committee along party lines. HB2133, sponsored by Rep. Justin Olson, R-Mesa, would exempt gains from taxes on capital investments made after Jan. 1, 2012.
Meanwhile, Rep. Carl Seel’s HB2488 would phase out the tax, exempting a third of capital gains from taxes starting in 2013, two-thirds in 2014, and finally eliminating the tax in 2015.
The measure with the most collaboration was Rep. J.D. Mesnard’s HB2597, which would increase the percentage of capital gains that could be exempt from taxation, rather than repeal the tax altogether. Mesnard, a Republican from Chandler, said he had been working with Gov. Jan Brewer and groups like the Arizona Chamber of Commerce and Industry on the bill.
Supporters argued that lowering or eliminating the capital gains tax would encourage investment and spur economic growth in the state. Stephen Slivinski, senior economist for the Goldwater Institute, told committee members that when New Mexico lowered its capital gains tax rate, investments spiked.
But Democrats on the committee had their doubts.
Rep. Ruben Gallego, D-Phoenix, countered by asking Slivinski which states have the greatest flow of venture capital. When he answered that California and Massachusetts do, which he attributed to the number of universities and technology sectors in those states, Gallego pointed out that both of those states have higher capital gains tax rates than Arizona.
Rep. Steve Farley, D-Tucson, argued that any reduction in the capital gains tax would be too costly for the state and the lost revenue would lead to cuts elsewhere in the budget, like education funding. He added that the wealthy stood to benefit more from the reduction than the working class.
“We’re taking money away from kids and foreclosed homeowners, and giving it to millionaires,” he said. “It’s not capital we need, it’s consumer demand.”
But Republicans on the committee argued that it was important to encourage investment.
Olson argued that the capital gains tax was double taxation: Companies pay an income tax when they earn money, but after it is invested and they see a profit, they are taxed again.
“We should get rid of it so we can grow our economy and grow our tax revenues that come in from that growth in the economy,” he said.
Rep. Ted Vogt, R-Tucson, said that the best way to get Arizona back on track economically is to make sure that the state was competitive with other states, and that lowering the capital gains tax rate was an important place to start.
All three bills passed the committee along party lines, with all six Republicans voting for it and the two Democrats present voting against it.