Lawmakers in negotiation on $1B in tax cuts, flat income tax

The House and Senate are in the midst of budget negotiations that could result in more than $1 billion in tax cuts and the implementation of a flat income tax in Arizona.

House Majority Leader Ben Toma, R-Peoria, said that while the details are still in flux, he believes support exists for the idea of phasing in a flat income tax over three or four years. He said he would like to see the rate around 2.5%.

“The idea is to kind of do a massive economic development bill and part of that is a sizable tax cut,” he said.

Toma said the bill would also include changes to property and sales tax numbers, and that the goal is to achieve tax reductions that are broad-based yet also targeted to “move the needle”  on economic growth. Toma stressed that the details are being negotiated and that some of the cuts would be offset by increases elsewhere, but he expects the overall tax cut will total more than $1 billion once it’s phased in.

“I fully expect if we do this right, it’ll end up (with) more revenues for everybody,” he said. 

Gov. Doug Ducey proposed $600 million in tax cuts over three years in the budget proposal he released in January, without providing any details of where he wanted them to go. Senate Republicans upped the ante in the budget blueprint they released later that month, proposing $250 million in one-time tax law changes and $200 million in ongoing cuts.

House Appropriations Chairwoman Regina Cobb, R-Kingman, said Friday that the House and Senate conversations last week focused on the broad strokes of tax cuts this year, and are still preliminary since some of the tax hawks in each chamber weren’t in the room for the discussion.

“That’s our linchpin, really, on the budget, because when you’re talking over a billion in a tax package, that takes a big chunk off of the table,” she said. 

Cobb said Toma’s proposal would cut income and property taxes and that a slight sales tax increase was also on the table. She said that the sales tax increase component would be marginal and total just a fraction of a penny.

“We’re gonna start moving here really quick,” Cobb said, adding that her sine die prediction is still a little after the 100-day mark from the start of the session. “Once we get these big pieces out of the way, we’ll be able to move a little quicker.” 

House Democratic leaders have argued against cutting taxes this year, saying any extra revenues should be used to address needs such as supporting schools, bolstering the state’s safety net and helping people who have been hurt economically by Covid.

“This is not the time to propose $1.2 billion in tax cuts over the next three years when Arizonans are still hurting, the pandemic is not under control and the vaccine rollout has been slower than expected,” Minority Leader Reginald Bolding, D-Laveen, said in January in response to Ducey’s budget proposal.

Yellow Sheet Editor Hank Stephenson contributed to this article.