So here’s a simple way to figure your taxes: List what you make, deduct $10,000 and pay 1 percent of that to the state.
That’s the plan that the state House adopted Wednesday, at least for those at the bottom of the income scale. It would allow single Arizonans who earn less than $25,000 a year to choose an optional flat tax instead of having to go through all the computations.
But Rep. David Stevens, R-Sierra Vista, said he sees his legislation as just a starting point.
Stevens said SB2018 is set up as a five-year pilot project to see how it works, who takes advantage of it, and how much the state might lose in revenues. He said there’s no reason the same system would not work for everyone.
Under current law, tax rates range from 2.59 percent for individuals with an adjusted gross income of up to $10,000 — double that for married couples filing jointly — to 4.54 percent for individual income of more than $150,000. But taxpayers are permitted to either itemize deductions or take a standard deduction based on their income.
Those who opt for the 1 percent levy would get only a standard $10,000 deduction.
Stevens said this is a good place to start. He said those at the bottom of the pay scale generally have no deductions anyway.
This permits them to look at their individual circumstances.
“If you get more of your tax money back with that form, you’ll use that form,” Stevens said.
“Being optional is the key,” he said. “If you don’t want to use it, don’t use it.”
Figuring out how much using the flat tax option would cost would be a snap.
Arizona is a “piggy-back” state: Each taxpayer’s state income is computed off of line 37 of the federal Form 1040, the federal adjusted gross income.
Under current law, that leads to all the additional computations and deductions.
But using what Stevens envisions, anyone whose income is $10,000 a year or less would owe nothing, though that person would still need to file a return.
Above that? Take earnings, subtract $10,000 and pay 1 percent. So the tax owed by someone at the top of what the law allows would be $150.
Stevens acknowledged that, pretty much by definition, taxpayers will choose the method that costs them less.
He said legislative budget staffers have put the potential loss to the state at $39 million.
That’s based on an estimate that 660,000 people would be eligible to use the optional flat tax and that 312,000 would actually opt for that alternative. But Stevens said he’s not concerned about the price tag.
“The beauty is, that’s money back in their pockets,” he said. “That’s the goal, to have people keep more of what they earned and not to have the state take it.”
Stevens may have something going for him politically that could help his measure become law.
Gov. Doug Ducey promised during his 2014 campaign to propose reducing taxes every year “with the goal of pushing income tax rates as close to zero as possible.” What Stevens is proposing could be a way for Ducey to meet that promise.