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Thanks for reading the State Rundown! Here’s a sneak peek: The Arizona House adopts an optional flat tax experiment for low-income residents. An Indiana Senate committee approves a transportation bill after removing a gas tax increase and income tax cut. Convoluted sales tax changes go into effect in North Carolina.

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– Carl Davis, ITEP Research Director

The Arizona House approved an optional flat tax for individuals who make less than $25,000 a year, or 660,000 tax filers. House Bill 2018 is being described as a five-year pilot project. Under the proposal, eligible filers can choose between calculating their tax liability under current law or choosing to pay a 1 percent rate on their income after taking a $10,000 standard deduction. Budget analysts believe the plan will cost the state $39 million in lost revenue, though supporters of the program hope to eventually enlarge that figure by extending the program to all tax filers. If that happens, the effects are virtually guaranteed to be regressive—Arizona’s graduated rate income tax is a rare bright spot in a tax code overwhelmingly stacked in favor of the wealthy.

An Indiana Senate committee recently approved a transportation bill partially paid for with a $1-per-pack cigarette tax increase, though other tax changes were stripped out at the last moment. The original bill included an increase in the state’s gasoline excise tax and indexed the tax to inflation. It also included income tax cuts added by the House. As ITEP’s own Lisa Christensen Gee noted in a guest blog post for the Indiana Institute for Working Families, the combination of changes would have made the Indiana’s tax system more regressive by providing income tax cuts to the wealthy in exchange for tax increases that hit working and middle-class families hardest. Ultimately, both the gas tax increase and income tax decrease were removed during the amendment process.

A number of new sales taxes went into effect in North Carolina recently, affecting services such as car repair, shoe repair, flooring installation, and appliance installation. While broader sales tax bases are generally better than narrower ones, the base expansion in this case is part of a regressive tax-shift that lowers income taxes and makes up the lost revenue through higher sales taxes. Moreover, the implementation of these base expansions has created some confusion among retailers regarding which services are taxed and which are exempted. For instance, car washes performed by an employee are now subject to the sales tax while self-service and machine car washes are not. Likewise, some home repairs and installations will be taxed but home repairs where no materials are sold will remain tax free.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Sebastian Johnson at sdpjohnson@itep.org. Click here to sign up to receive the Rundown via email.