Tax Justice Victory in Arizona: Flat Tax Bill Dies in Senate

After passing the Arizona House and the Arizona Senate’s tax-writing committee, a sharply regressive flat tax bill died a sudden death this week when its sponsor admitted that he needed to address a number of flaws in the legislation.  Data from ITEP and from the state’s Department of Revenue played a vital role in demonstrating one of those flaws: its extreme unfairness.

Rep. Steve Court’s bill (HB2636) would have broadened Arizona’s income tax base significantly, and used the revenue generated by this change to replace the state’s graduated rate structure with a super-low, 2.13 percent flat tax rate.  Some of the base-broadening measures contained in the bill – like the elimination of itemized deductions – deserve real consideration.  But Rep. Court’s bill also eliminated the standard deduction, the personal exemption, and the low-income family tax credit.  As a result, had the bill passed, Arizona’s income tax would have been left with basically no mechanism in place for ensuring that poor families would not be taxed deeper into poverty.  Moreover, the bill’s attempt to abandon the state’s graduated rate structure in favor of a flat tax would have resulted in exactly the type of regressive impact you’d expect.

Armed with data provided by ITEP, the Arizona Children’s Action Alliance (CAA) played a key role in injecting the fairness issue into the debate.  Late last week, The Arizona Republic ran a story explaining that the bill would raise taxes for the vast majority of Arizona families, while cutting taxes only for those at the top of the income distribution.  The sponsor of the legislation refused to share the Department of Revenue’s full detailed analysis of the bill, so the Republic cited ITEP’s numbers showing that while most families would see tax hikes around $200 per year, those fortunate families with incomes between $152,000 and $354,000 would see their tax bills cut by $900 or more.  Families earning over $354,000 would have seen even larger tax cuts.

Following the release of that article, The Arizona Republic’s editorial board published a piece last Sunday calling the bill “blatantly unfair,” and urging the Senate to reject it.  Other groups, including most notably the real estate lobby, also objected to the bill on the grounds that it would wipe out their favorite tax preferences.  A few days later, the bill’s sponsor declared it dead for this year’s session, though he’s vowed to try again next year.