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Arizona GOP files budget that flattens income tax

The next Arizona budget could see nearly all of the state’s taxpayers paying the same percentage on their income taxes.

Arizona Republicans unveiled their tentative budget Monday for the upcoming fiscal year, which begins in July.

The spending plan removes four of the state’s income tax brackets and replaces them with one 2.5% income tax rate. The additional 3.5% income tax implemented in the 2020 election with Proposition 208 would remain for high-earners.

The nonprofit Joint Legislative Budget Committee released an analysis of the legislation that spans several bills. It would:

• Reduce the individual income tax rates to 2.55% for taxable income up to $27,272 for single filers and $54,544 for taxpayers filing jointly in tax year 2022, and reduce it again to 2.5% the following year.

• Cap the total tax rate at 4.5% for taxable income above $250,000 for single filers and $500,000 for joint filers. This appears to include the Prop. 208 surcharge.

• Increase the $100 dependent tax credit to $150 for those under age 17 and increase the rate for those older to $75 from $25. That change would take place in tax year 2022.

The state has a one-time $4 billion budget surplus because of better-than-expected tax revenue and an influx of federal aid. According to advocates who estimated the difference, the income tax change would mean about $1.5 billion less collected from taxpayers.

In addition to income tax changes, the bills also would increase the state’s maximum weekly unemployment rate to $320, up from $240. It also would add two weeks in which an unemployed Arizonan may collect, increasing it to 26 weeks. If the state’s unemployment rate is below 5% in the previous quarter, the time is reduced back to 24 weeks. At $240, Arizona’s unemployment benefit rate is one of the lowest in the nation.

Free market advocates praised the bill before it was filed.

“Arizonans support this pro-growth plan that would cement our state as a leader on tax reform and ensure we remain competitive with nearby states who don’t have an income tax,” said Stephen Shadegg, Arizona state director of Americans for Prosperity.

Others warned the state would be short-changing local units of government that rely on their portion of the state’s income tax revenue.

“These cuts would result in a loss of critical services that our communities depend on to thrive like public safety, transportation, parks, libraries, and infrastructure,” the Arizona Center for Economic Progress said in an April release.

The bills are scheduled for consideration Tuesday morning.

This article was originally posted on Arizona GOP files budget that flattens income tax

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