Saying it will help Arizona compete for new jobs, Gov. Jan Brewer on Friday signed into law a bill providing tax breaks to business owners and investors.
The centerpiece of the bill, which the Legislature approved last week, is a 25 percent reduction on individual income tax paid on capital gains, the profits made on investments.
The capital gains reduction will be phased in over three years starting in 2013 and applies only to assets purchased in 2012 or later.
The 2012 legislation signed Friday by Brewer was approved a year after the Republican governor and the Republican-led Legislature approved a so-called competitiveness package of tax cuts and other provisions intended to boost economic growth.
During legislative debate on the 2012 bill, supporters said the capital gains reduction and other changes in the bill will spur business investment, while critics questioned that and said the only guaranteed result is lost state revenue.
“It’s irresponsible for tea party lawmakers to hand out tax cuts to the rich while working families can’t get health care coverage for their children,” House Minority Leader Chad Campbell, D-Phoenix, said.
Brewer, who signed the bill during an Arizona Manufacturers Council luncheon, told the audience the bill provides “a roadmap for success” in growing the state’s economy, particularly its manufacturing sector.
She later said the bill will help Arizona compete with nearby states such as Nevada and Texas that don’t have state income taxes.
The legislation was approved on the final day of the legislative session, and Democrats and even some majority Republicans said they weren’t given time to study details of changes made after last-minute negotiations.
Other parts of the bill signed by Brewer include letting businesses claim a bigger deduction from the property tax on business equipment and creating a new tax credit for investments in new manufacturing plants, research facilities and corporate headquarters.
Legislative budget analysts estimated the loss in annual state revenue — which also represents taxpayer savings — at $74.8 million by the 2015-16 fiscal year and $107.8 million by fiscal 2018-19. The analysts’ estimates don’t take into account possible revenue gains generated by increased economic activity resulting from the legislation’s tax changes.
The $107.8 million figure represents about 1.2 percent of the $8.6 billion of spending in the newly approved state budget for the fiscal year that starts July 1.
The tax legislation was the subject of months of negotiations between Republican legislators, business lobbyists and Brewer’s office.
Brewer said before and during the legislative session that she supported tax changes to spur the economy but also warned that she wanted to hold down revenue losses to the state.
The 2011 package’s tax provisions have an estimated $120 million cost in lost revenue when the main provisions start in the 2015-16 fiscal year. The biggest change in that package is a corporate income tax rate reduction. Other provisions include a corporate income tax formula change benefiting manufacturers and separate tax breaks for creating new jobs.
In both years, Brewer insisted that business tax cuts don’t take effect until the voter-approved temporary increase in the state sales tax expires in mid-2013.
In pushing for the sales tax increase to help balance three fiscal years of state budgets, Brewer said in 2010 the revenue wouldn’t be used to pay for business tax cuts.