AZ House, without 1 Dem, OKs tax cuts

But some local property levies would shift to homeowners
2010-01-29T00:00:00Z AZ House, without 1 Dem, OKs tax cuts Howard Fischer Capitol Media Services Arizona Daily Star
January 29, 2010 12:00 am  • 

PHOENIX - Without a single Democrat in support, the state House on Thursday approved a package of tax cuts that its proponents say will stimulate the economy.

HB 2250 would cut corporate income-tax rates by nearly 30 percent, from close to 7 percent to just 5 percent. Individual income taxes, which are computed on a sliding scale, would drop by 10 percent across the board.

The measure also would phase out the state property tax. And it would shift some of the burden of local property taxes from businesses to homeowners.

Thursday's vote sends the package to the Senate.

But it is likely to be held up there until Republicans who control both chambers come up with a plan to deal with the $1.4 billion deficit. And one element of that, at least in the mind of Gov. Jan Brewer, is a temporary tax hike.

House Speaker Kirk Adams, R-Mesa, who crafted HB 2250, said his measure recognizes the current gap between revenues and expenses. He said that is why the cuts will be phased in over four years, starting next year.

But Adams said it is politically necessary to approve future tax cuts now: He said many Republicans, especially in the Senate, will support an immediate tax increase only if future tax relief is assured.

Aside from broad-based tax cuts, the package includes tax credits for companies that create new jobs that pay at least 135 percent of the median wage of the county where they locate and pick up half the cost of health insurance. One of these would give firms a rebate of half of what they collect from new workers in state withholding taxes.

Those credits are similar to a plan unveiled Thursday by President Obama to give businesses a $5,000 tax credit for every net new worker they hire, capped at $500,000 for any one firm.

Obama's proposal also would reimburse businesses for any increase in their Social Security payroll taxes due to increasing wages for existing employees.

But the plan approved by the state House, unlike what the president wants, is heavy on tax cuts for all firms.

None of the Republicans who back the proposal denied it would shift some property taxes to homeowners. But Rep. John Kavanagh, R-Fountain Hills, said that change and the other tax cuts are necessary to get Arizona's economy back on its feet.

During debate on the measure he compared it to giving someone a fish and feeding him for a day, versus teaching him how to fish and feeding him for a lifetime. He said that is what makes him different from "tax-and-spend liberals who confront economic adversity by increasing welfare programs."

But Rep. Tom Chabin, D-Flagstaff, said shifting the cost to homeowners is not fair.

"We have 50,000 homes in foreclosure in Maricopa County," he said. "And it's pretty clear they don't have the capacity to pay the tax."

Several Democrats said they agree with the need to stimulate the economy to produce tax dollars. But House Minority Whip Chad Campbell, D-Phoenix, said there are better ways to stimulate economic growth than across-the-board tax cuts for every business in the state, citing last year's legislation that provides targeted tax breaks for companies that manufacture solar energy devices.

But Adams said the package is culled from what has worked in other states to deal with the state's jobless situation.

In December, there were 2,437,500 people working in nonfarm jobs in Arizona. That is a drop of more than 10 percent since the peak three years earlier.

Adams said Arizona's economy was hit hard because of its dependence on growth and the construction industry.

He said lower business taxes will help diversify the economy by encouraging manufacturers and others to relocate or expand here.

All that, however, still leaves that $1.4 billion deficit.

Brewer had asked lawmakers to enact a 1-cent hike in the state sales tax, effective March 1, to generate $202 million for the balance of this fiscal year. But that requires approval of two-thirds of both the House and Senate, and the votes are not there.

Adams and Senate President Bob Burns are instead working toward trying to corral the simple majority necessary to refer the issue to voters in May. Adams said he expects that plan to go to Brewer at the same time as his deferred-tax-cut measure.

Gubernatorial press aide Paul Senseman said Brewer does believe future tax cuts "are good for Arizona's economy," though she does want action on resolving this year's deficit.

Time is running out, though: Secretary of State Ken Bennett said the Legislature has to approve referring the tax hike to the ballot no later than Feb. 16 to get it on the May ballot.

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