State’s Rainy Day Fund Eyed As Support For Tax Overhaul

By Terri Jo Neff

What to do with Arizona’s $350 million or so surplus has a lot of legislators pulling out their calculators and trying to figure out how best to spend the money, and whether to implement Gov. Doug Ducey’s proposed permanent tax cuts.

Among the leading contenders for allocating the surplus funds to increase some public health and healthcare spending, increasing funds for higher education, and addressing the state’s unemployment situation. One issue likely to be front and center is what consideration should be given to COVID-19 relief funds received from the federal government in deciding how to divvy up the surplus.

The Finance Advisory Committee will meet Thursday at Noon to discuss this year’s budget process. But two ideas for using the state’s surplus to change Arizona’s tax system are already gaining momentum.

One option is to convert the state to a flat income tax, something that would likely need to be transitioned to over a two to three year period. A sales tax is an example of a flat tax, where everyone pays the same percentage.

It is an idea popular this year among Republican legislators, with heavy support from House Majority Leader Ben Toma, Sen. J.D. Mesnard, and Rep. John Kavanagh. However, coming up with a plan that can receive enough votes will be a challenge, given that legislators have differing ideas of how a flat tax system should work.

Another option for utilizing the surplus is to implement permanent tax cuts, such as the $600 million of income tax cuts proposed by Ducey in his 2021-2022 budget. The governor’s proposal would phase in the cuts over three years starting in 2022.

Other tax cuts could involve reductions in residential and commercial property taxes, although many cities and towns are opposing that idea.

More will be known after Thursday’s meeting as to what consensus House leaders can come up with.

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