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Details on the tax end have emerged for the state budget and we have rumors of choppy waters ahead.  We need a public tsunami.

It’s a fiscal disaster for state finances long-term, even though it gets us through short-term—though even there at great cost (see http://30daysinjune.blogspot.com/2009/06/proposed-budget.html for impacts on education especially).

Let’s start with the math. 

Here’s the flat tax proposal (see my prior post on the flat tax (http://www.makedemocracywork.org/columns/2009/06/27/a-flat-tax-is-flat-wrong/ ).

Single/Married Filing Separate income brackets Married Filing Joint/Head of Household income brackets Current Individual Income Tax Rates New Rate with the Flat Tax Percent decrease
$0 - $10,000 $0 - $20,000 2.59% 0% 100%
$10,001 - $25,000 $20,001 - $50,000 2.88% 2.8% 2.78%
$25,001 - $50,000 $50,001 - $100,000 3.36% 2.8% 16.67%
$50,001 - $150,000 $100,001 - $300,000 4.24% 2.8% 33.96%
$150,001 and over $300,001 and over 4.54% 2.8% 38.33%

It’s not revenue neutral and kicks in for the 2012 calendar year…the estimated cost $450 million.NO WAIT!  There’s a HUGE MATH ERROR in the document that legislators and the public have been viewing!  More...

Using  2005 numbers-which doesn’t distinguish single from married– (and this will be higher in 2012 since we don’t adjust brackets for inflation), 86.5 percent of revenue came from filers earning at least $50,000.  By December 2011 this will be 90 percent.In 2005, approximately 46 percent of revenue came from those earning  above $200,000.  (see page 75 http://www.revenue.state.az.us/Annualreports/2008/FY08%20Annual%20Report_web.pdf. I’m leaving off nonresident filers listed on page 76—including them would make all these numbers go up!) . 

Let’s use 50 percent of lost revenue from those  getting a 34 percent cut in 2012. Most of the remainder comes from the higher remaining earners-combining their net tax reductions yields an estimate of 28 percent.

So if assume that come 2012, 50 percent  of revenue loss are from those whose overall income taxes fall by 34 percent, and 50 percent see their overall income taxes fall by 28 percent , then the overall decline in income taxes is 31 percent.

The JLBC estimates that fiscal year 2012 individual income tax revenue will equal $3.75 billion (the same as fiscal year 2007 despite continued population growth) if we don’t change the income tax!  Since the fiscal year goes  June 2011-June 2012, for calendar year 2012 let’s increase that by 2 percent to $3.825 billion. (see p. 11 of http://www.azleg.gov/jlbc/budgetupdatevoterprotection.pdf and p. 33 of http://www.azleg.gov/jlbc/08taxbook/08taxbk.pdf).

So here’s your AIMS math question of the day!
What is 31 percent of $3.825 billion?
a.       $450 million (as publically noted in the bill summary for HB2653? http://www.azleg.gov/FormatDocument.asp?inDoc=/legtext/49leg/1r/summary/h.hb2653_06-26-09_approp.doc.htm -note they may fix it once they get wind of this)
b.      $1.186 billion
c.       Way too much money to be giving away, especially to the rich,  for our state’s future
d.      Both b and c
The best answer is d—but it’s absolutely shocking that legislators are considering such a major change with a $736 million math error!!

The tax proposals get worse.

The equalization property tax disappears—cost $200 to $250 million.

And corporate property taxes are reduced in terms of assessment from 20 percent to 15 percent.  Homes are assessed at 10 percent, and this has used to be 25 percent.  The fiscal impact would likely be higher property taxes for homes—and our property taxes in Arizona for residences are quite low compared to elsewhere-but we really need to more carefully explore this, and not do it in the very last days of June.

This so we can increase sales taxes by 1 percent for three years if the voters approve them in November?

Yikes!

Dave Wells holds a doctorate in Political Economy and Public Policy and teaches at Arizona State University.  Reach him at Dave@MakeDemocracyWork.org. The views are his own.