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Tax Cuts Have Long Term Impact

The Arizona economy and state revenues still struggle for a full recovery from the Great Recession and the expiration of the temporary sales tax takes nearly $1 billion each year out of state dollars. State funding for child care, K-12 education, and assistance for poor children remains far below what it was in 2008. Yet lawmakers continue to add more tax cuts to a very long list of tax cuts passed since 1990.

In the final hours of this session, the legislature passed a number of tax cuts totaling a loss of more than $58 million to the state general fund. Governor Brewer vetoed four tax cut bills this session – two because they hit her desk when she was waiting for the bills on the budget and Medicaid restoration.

She vetoed HB 2439 after the legislative session ended. The bill would have required the Department of Revenue to annually adjust the individual income tax brackets to account for inflation, with an estimated annual loss of $11 million. Governor Brewer’s veto letter said these types of adjustments should not occur automatically but, instead, should be made by the Legislature “after careful consideration and in relation to other tax and expenditure decisions.”

She also vetoed HB 2342, which would have increased an existing refundable tax credit for research from $5 million to $15 million. In her veto letter, Governor Brewer pointed out that “….a refundable tax credit is designed as not just a reduction in a tax liability, but extends beyond any liability to draw on general fund dollars. Such expenditures of state taxpayer dollars deserve the highest level of scrutiny to determine their benefits to the overall state economy as well as their relative importance against other general fund obligations.”

In fact, most tax credits get little scrutiny in Arizona. While state spending is analyzed, debated, and voted on every year, tax credits continue indefinitely without another vote. Even when the legislative budget office finds no evidence of positive impact from a tax credit, there is rarely a bill introduced to amend or end it. It takes a two-thirds vote in both houses to reduce or eliminate a tax credit or tax cut once it is in place without an expiration date.

The tax cuts signed by Governor Brewer this year include instant depreciation for business property purchased before 2014, new tax credits for data centers, a corporate income tax cut for some private universities, and allowing more Arizonans to cut their state income taxes when they donate to an organization helping working poor families. In addition, tax cuts that were adopted in previous years continue to grow as additional cuts in tax rates phase in.

Click here to see a summary chart of the tax cuts that were signed and vetoed.

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