2021 Arizona Legislative Report: Financial Focus By Ryan DeMenna
From the outside looking in, it appears that the Arizona State Legislature doesn’t have much focus. To some extent, this is true. There’s a lot happening. But there are always a few policy areas that eventually receive lawmakers’ undivided attention.
This year, state lawmakers focused a lot on the state’s election procedures in the wake of the 2020 General Election. But it’s safe to say that you’ve already heard more than enough about that. Lawmakers also focused quite a bit on tax policy. When compared to previous legislative sessions, their focus on tax policy was greater than ever. Close observers of Arizona politics likely recall that when Governor Doug Ducey was first elected in 2014, he promised supporters he would do everything he could to reduce, if not eliminate, the state income tax. Over six years later, and with less than 18 months left in office, Governor Ducey is closer than ever to achieving that goal. The recently enacted $12.8 billion state budget included a “flat tax” of 2.5% that will be phased in over three years – assuming certain state revenue “triggers” are met. The flat tax eliminated the state’s progressive taxation system that ranged from 2.59 to 4.5%. Proposition 208, an initiative approved by Arizona voters that imposed a 3.5% tax surcharge on high-income earners, spurred the renewed focus on a flat tax. The revenue produced by the surcharge is intended to boost the salaries of teachers and other school employees. Proposition 208 would have raised the top tax rate to 8%, but the flat tax ensures that individuals with income above $250,000 and couples with income above $500,000 will pay no more than 4.5%. In the wake of his legislative victory, Governor Ducey has already hinted that more income tax reductions are coming. The flat tax, however, wasn’t the only noteworthy policy change in the state’s financial realm.
SEPTEMBER/OCTOBER 2021 AZ CPA
9
