In budget showdown, small businesses may get to see who truly supports small business over government largesse
State and local governments in Arizona have a record amount of cash sitting in their coffers. If current state government spending is used as a starting point, the year-end cash balance for the state would be roughly $2 billion.
Arizona’s state leaders have been making decisions over the past few years that have put our citizens in a meaningfully better position. The latest reports show that personal income in Arizona rose at a faster rate than almost every other state. What better time, then, to continue to move forward and build on the success we are seeing? We can do this by adopting tax policies that encourage small businesses to start up and expand.
Arizona’s Governor, Doug Ducey, and state legislative leaders have a plan that will move Arizona into a competitive position for small businesses and cut income taxes for every Arizonan. But passage of this tax plan, contained in House Bill 2900 and Senate Bill 1828, is proving not to be so easy, mainly due to local governments’ unfounded hysteria.
The budget and tax plan has many provisions, but at its core, the plan:
- would establish a single rate state income tax of 2.5% for everyone; this is lower than each marginal rate currently paid by Arizonans
- would get around the negative effects of Proposition 208 by setting a 4.5% rate cap on personal income
- increase funding for schools
- and keep local government finances flush by continuing to share a generous portion of state income tax revenue with Arizona’s cities and towns.
What’s not to like?
In a memorable scene from Casablanca, Captain Louis Renault professes he is ‘shocked, shocked!’ to find gambling going on in Rick’s Café and a second later is handed his winnings from a game he just stepped away from. So, too, it seems with the people representing Arizona’s cities and towns.
Arizona’s local government lobbyists would like lawmakers to ignore that they are brimming with revenues unseen before. In fact, collectively, Arizona’s cities and towns have fund balances greater than 30% of their annual spending just sitting in government coffers. These local governments worry that creating a more growth-oriented income tax system will somehow lead to a loss of state revenue and therefore a smaller nominal amount as their slice of the pie.
One would think this passage from a recent analysis from the Governor’s Office of Strategic Planning and Budgeting (OSPB) might allay their fears.
“After review, OSPB now believes that the dramatic over-performance in recent years is in part due to an underestimate of potential revenue gains from two major policy changes:
- Conformity in 2017 to the Tax Cuts & Jobs Act, which expanded the State’s Income Tax base
- Adoption, also in 2017, of a Remote Sellers tax following the Supreme Court’s decision in Wayfair
“Together, these changes have increased the taxable share of Arizona’s economy, effectively allowing the State to collect more revenue at the same rates.”
In short, the money will be there because Arizona’s state leaders have recently adopted tax policies that are capturing more revenue than anticipated. It is disappointing to see some supposedly ‘conservative’ lawmakers falling for the false and misguided arguments put up by taxpayer-funded local government lobbyists and a few spend-happy local elected officials. The tax reforms proposed will benefit everyone, especially those small businesses that are post-pandemically clinging to what they have left. As Daniel Scarpinato, Gov. Doug Ducey’s chief of staff, said on Fox 10’s Newsmaker Saturday:
“Government has record revenue. If you are a barber, or a waiter, or a waitress, I can guarantee you those folks do not have record revenue after the year we’ve been through. Let’s let them keep more of the money they earn.”
NFIB Arizona has notified lawmakers that House Bill 2900, the first to come for a full chamber vote, has been designated a Key Vote toward their session voting record.
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