Republicans in the Arizona Legislature are pushing a series of large and small tax cuts as revenues soar and money from new tax collections on out-of-state internet sales comes in higher than expected.
The biggest tax cut plans making their way through the House of Representatives were debated Wednesday in the Ways and Means Committee. They include a $100 million a year property tax cut for commercial and residential properties and a proposal to cut income taxes and eliminate a vehicle license fee that would cost $161 million in the first year. Both passed over Democratic opposition. The cuts to county property tax rates that fund schools would be backfilled by state cash.
The proposals are in addition to the $45 million tax break for retired military personnel Gov. Doug Ducey proposed in his $12.3 billion state spending plan last month.
Minority Democrats are strongly opposed to most of the measures, saying schools and other state needs make it ill-advised to enact more tax cuts.
“As long as the state of Arizona is shortchanging our children and our schools, and as long as the state of Arizona is worst in the nation …. for adverse childhood experiences, we don’t have a budget surplus,” Democratic Rep. Pamela Powers Hanley said before voting against the big House tax cut measure.
But Republicans are forging ahead with the plans, noting that the state expects a budget surplus nearing $1 billion for the budget year that begins July 1.
Rep. Ben Toma, the sponsor of the big House income tax cut bill, said cutting taxes sets the state up for growth.
“Broad-based tax cuts and just cutting red tape in general will lead to more revenue for everyone,” Toma said. “And we’ve seen that happen, in spite of the fact that some sort-of strongly wish that was not true. But it has been true, we’ve seen how that’s worked from the federal level all the way down.”
The governor pegged Arizona’s budget surplus at $965 million, with about a third of it available for programs that carry an ongoing cost without throwing future budgets out of balance.
That number is rising, as projections for collections from non-Arizona internet sales exceed what was expected when lawmakers voted last year to begin collecting them starting in October. Those collections were not allowed until a 2018 Supreme Court decision.
The Legislature’s budget analysts expected $85 million a year in general fund revenue from those sales, plus money for schools, cities and countries. But numbers from the Department of Revenue for the first three months of tax collections show that number is coming in well above that estimate.
The department said the state’s 5% sales tax brought in $61.2 million from when collections began Oct. 1 through Dec. 31, well above the $19 million expected for that period. Schools, cities and counties got another $36 million in that three months.
If collections continue at that pace, the general fund will collect $126 million more than expected this budget year.
Toma said that it’s no coincidence that the property tax cut proposal came in at $100 million.
“We’re sitting on a pretty hefty surplus once again, so I think it’s fair to have a discussion about whether or not we offset most of this additional revenue this year with some sort of broad-based tax cut,” he said in an recent interview.
The Senate is separately advancing a broad tax cut sponsored by Republican Sen. J.D. Mesnard. That proposal includes a series of tax cuts that would save taxpayers $355 million over three years.
The big cuts are above a series of small tax breaks GOP lawmakers are debating.
All will have to be wrapped into a total budget plan that is being negotiated between majority Republicans in the Legislature and the governor.