One of the state’s three Republican legislative leaders has vowed he won’t let the Trump tax cuts have a negative ripple effect on Arizona taxpayers.
House Speaker J.D. Mesnard acknowledged that the linkage between federal tax laws and the state tax code means that what is in the federal law affects the deductions that Arizonans are allowed to take when computing their state income taxes. The state Department of Revenue figures those changes would automatically take an extra $250 million a year out of the pockets of individual and business taxpayers.
Mesnard said he will push for changes in Arizona tax laws to keep that from happening.
“Not doing so would trigger an automatic increase in state income taxes on Arizonans, which is unacceptable,” he said. “The federal tax reform was meant to be a windfall for taxpayers, not state government.”
Gov. Doug Ducey has not made a similar pronouncement, though press aide Daniel Scarpinato said his proposed $10.1 billion spending plan, released Friday, does not count on the extra dollars.
There has been no comment from Senate President Steve Yarbrough.
But Sen. Steve Farley, D-Tucson, said GOP lawmakers should not be so quick to forego the additional dollars. He said the state should see whether there’s a way to take advantage of the changes in federal law, but do it in a way he believes is fair.
Unlike some states, Arizona requires its taxpayers to use the federal adjusted gross income — line 37 in individual returns — as a starting point for determining an individual’s state taxable income.
What Congress approved last month eliminates some deductions above line 37. So the FAGI is higher, as is that starting state income.
More complex is that Arizona law generally links what Arizonans can deduct from their starting point state income to what federal law permits. The new changes from Washington eliminate some entirely, like writing off the value of property destroyed by fire or stolen, and places limits on some others.
Farley, a Democrat contender for Ducey’s job in this year’s election, said the state should seriously think about keeping the extra money that would flow to Arizona from corporations due to the federal tax law changes. He said they are the big winners in the federal tax law changes.
“We should be accessing that money to help mitigate the damage that’s being done by the federal tax bill,” Farley said. He cited figures that show half of all teacher vacancies this year are being filled by people who do not have regular teaching credentials.
“We’ve got a crisis that we need to fund,” he said. “If we could put that money into teacher raises, that would help a great deal.”
Most of the impact of the federal tax law changes on Arizona taxes, however, would affect individuals. Farley said that presents a different problem.
“We’re going to have to pick and choose and make sure that none of these increases negatively affect working families or poor families,” he said. But the story is different for those in the top income brackets.
“They should have to pay for it because they’re going to be getting this relief from the federal tax bill that’s going to go out to the 90th percentile and above,” he said.