Massive Arizona income tax cut going into full effect

PHOENIX - A massive Arizona income tax that mainly benefits the wealthy championed by GOP Gov. Doug Ducey and enacted by Republicans who control the state Legislature in 2021 will go into full effect ahead of schedule next year, Ducey’s office announced Thursday.

The plan will save taxpayers about $1.9 billion next year compared to before the plan was enacted, although the vast majority of those cuts go to high-earning Arizonans. The cuts started at $1.5 billion this tax year and were to be phased in once the state met revenue targets, which came a year before projections.

The flat tax plan eliminates the state’s old graduated income tax scale, which started at 2.59% and had a maximum tax of 4.5% for income over $159,000 a year for a single person. All taxpayers will now pay a maximum of 2.5%.

Ducey says the average family will save $350 a year, but the Legislature’s budget analysts put that figure much lower. Meanwhile, high-earning Arizonans will see huge benefits.

"These tax cut overwhelmingly benefit the richest Arizonans and do very little for middle- or low-income Arizonans," said David Lujan, President and CEO of the Children’s Action Alliance, a lobbying group that advocates for child welfare and education issues.

"If you’re making over half a million dollars a year, you get an average tax cut of over $16,000 annually," Lujan said. "A household with $70,000 a year gets a $58 annual tax cut."

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Ducey has mainly waived off the inequities in who benefits from the measure he signed last year, instead trumpeting the effects on the state’s economy,

"This tax relief keeps Arizona competitive and preserves our reputation as a jobs magnet and generator of opportunity," he said in a statement.

Opponents of last year’s tax cut package, mainly backers of public education, collected enough signatures to block it from taking effect until a vote in November’s election. But the state Supreme Court halted that effort in April, agreeing with business groups that tax legislation is not subject to the voter referendum process in the state constitution.

Republicans who steered the tax cuts through the Legislature last year also hailed the acceleration. The tax law said the full cut would go into effect if revenues yearly exceeded $12.9 billion. Revenue in the budget year that ended June 30 reached $16.7 billion, the most ever.

Republican Senate President Karen Fann called it "incredible news for the hardworking men and women of Arizona," who are dealing with inflation and a potential recession she blamed on government spending by congressional Democrats.

But the tax cuts could cut both ways if a recession hits. Arizona was among the states that had to make the biggest spending cuts after the Great Recession hit in late 2007.

Lujan said state rosy revenues figures are inflated by federal pandemic spending.

"If our economy goes into a recession like a lot of people think, all these tax cuts are going to mean we’re going to have to cut the next time we see an economic downturn," he said.