Arizona lawmakers to tackle income tax overhaul

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By Sarah Blais By Sarah Blais

PHOENIX (AP) -- Arizona lawmakers slashed the state's corporate tax rate in 2011, sliced other business and capital gains taxes in 2012 and just completed a major overhaul of the state's sales tax collection system.

Next up is a push to revamp the income tax system that majority Republicans say is needed to help improve Arizona's business climate and make it fairer to the average taxpayer. A committee made up mainly of tax-cut champions from inside and outside the Legislature has its first meeting Wednesday to come up with proposals lawmakers can take up next year.

One of two Democrats on the committee is worried the project will turn into another effort to institute a so-called "flat tax," one that shifts the burden from the rich to the middle class and poor. Such proposals cut top tax rates paid by high-earners and sometimes raise the rates paid by lower-earners while eliminating deductions.

"From the people on the committee, it's clearly a stacked deck for people who want the flat tax," Sen. Steve Farley, D-Tucson, said Tuesday. "I think in Arizona we've seen plenty of benefit go to the rich and we've seen the poor get poorer, so I'm not clear that's the way we need to go."

A 2011 flat tax proposal was speeding through the Legislature before a state analysis showed it drastically cut taxes for people making $100,000 and above while dramatically raising taxes for lower earners.

"It's really too bad that that exercise took place the way that it did because now there's a stigma associated with it," said Rep. J.D. Mesnard, the Chandler Republican co-chairing the committee. "I'm a pretty practical guy. We're not going to be doing anything that's going to be increasing taxes on the poor."

The committee announced last week by Senate President Andy Biggs and House Speaker Andy Tobin, both Republicans, includes conservative GOP lawmakers that have championed tax reform. It also includes a representative from the Goldwater Institute, which champions lower taxes, and the Arizona Tax Research Association, which lobbies for business interests and taxpayers at the Legislature.

Republicans are eyeing money they may get from taxing Internet sales as a way to cushion the hit to lower income earners by flattening the state's tax structure.

More than 37 percent of the state's $8.4 billion in revenue comes from income taxes. Revamping income tax rates means either shifting the burden elsewhere, replacing them with new taxes or cutting spending.

Mesnard recently wrote a newspaper opinion piece about using the revenue anticipated from new Internet sales tax collections to cut other taxes. Another committee member, Goldwater economist Stephen Slivinski, said in an interview that cutting income taxes would be easier if new Internet sales tax revenue is available.

Tobin said Tuesday the joint committee is not set up to put a flat tax in place. He said previous tax cuts passed by the Legislature have helped the state's economy and the income tax is next on the list.

Farley suggested that cutting the state's sales tax was a better way to stimulate the economy.

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