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Flat-tax plan could mean many will pay more

Flat-tax plan could mean many will pay more

PHOENIX - It could soon be a lot easier to compute your state income taxes.

But the trade-off is, lots of us will end up paying more.

The House on Monday voted 40-18 to scrap virtually all of the deductions now available to Arizona residents to reduce their taxable income.

And by 2015, the current graduated tax rates, from 2.59 percent at the bottom end to 4.54 percent, will also be gone. In its place would be a flat rate of 2.08 percent.

Rep. Steve Court, R-Mesa, who wrote the measure, said it is designed so the state takes in just as much as it would under the current system. But it means there will be winners - and losers, he said.

Losers include those who reduce their taxable income by the amount of interest they pay on their home mortgages and deduct charitable contributions.

Court's proposal eliminates the personal exemptions and standard deductions, which together have, until now, resulted in some people owing no state taxes at all. Generally speaking, a couple with at least one dependent with a federal adjusted gross income of about $15,000 a year have been able to reduce their state tax liability to zero.

No more. And Court said that is by design, even though the federal poverty level for a family of three is $18,310 a year.

"They're using state services," he said. "And it's a nominal amount."

At $15,000, that 2.08 percent tax rate would compute to about $312 a year.

Court said having everyone pay taxes also is good from a public-policy standpoint.

"They would have greater interest in votes in the future that somebody's proposing to raise taxes and now they'll be affected," he said.

Rep. Steve Farley, D-Tucson, said there is evidence that people across the income scale will be hit.

He cited a report prepared by Walter Dudley, a certified public accountant, who took the taxes of six different families and compared what they pay now versus what they would pay in the future. The incomes ranged from $17,784 to $248,456.

"What he discovered was every single one of those households saw their taxes increase under these rules," Farley said, ranging from $370 more a year for the family at the lowest end to $5,274 in extra taxes for the family at the top.

"So if you're voting for this bill, you're voting for a massive tax increase on every household in the state of Arizona according to calculations," Farley told other legislators.

Rep. John Kavanagh, R-Fountain Hills, said he dismissed Dudley's conclusion as something that would be expected from accountants who figure to lose business with the change.

Ultimately, Court said, it comes down to a question of philosophy. He said there is no reason for those who are doing better to pay a higher percentage of their income to support government.

"With a flat tax, if you make 10 times more than I do, you'll pay 10 times as much tax," he said. "I'm just trying to get everybody back down to a level playing field."

The measure now goes to the Senate.


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