Arizona House Big Loopholes OK for a New Tax on the Wealthy United States Legislature Republican Phoenix Joe Thomas

After cutting income taxes by $ 1.9 billion to benefit mainly high-income taxpayers and shielding them from higher taxes approved by voters in a move last year, the House-controlled House Republicans returned on Friday and passed new legislation targeting Proposition 208.

The House has approved the creation of a new class of taxes for small businesses, trusts and estates that will eliminate even more money than the measure approved by voters in November and intended to collect for schools. The proposal was passed despite unified opposition from minority Democrats

It creates a new small business tax class that will allow many high earners to avoid the 3.5% surtax in Proposition 208 entirely. New small business tax brackets start this year at 3 , 5% and fall to 2.5% in 2025, like the new “flat rate tax” approved this week for all taxpayers. Estates and trusts will pay a little more.

In other developments on Friday, the House did not include a massive expansion of the state’s private school voucher program in the budget bill for K-12 schools.

If approved in a formal vote, the House version of the bill will create a conflict with the Senate version of the budget, which will need to be reconciled next week before it goes to the governor for approval. An extension of universal school vouchers adopted in 2017 was blocked by voters the following year, but it remains a priority for many Republicans. Two Republicans joined all Democrats in opposing the expansion of school vouchers.

The House added a provision requiring schools to teach a new civic education curriculum developed by the State Board of Education “to include a comparative discussion of political ideologies that conflict with the principles of liberty and freedom. democracy essential to the founding principles of the United States. “Democrats called it an unprecedented state mandate over what is taught in schools. This is another part of a series of policy articles targeting or reacting to the so-called.” Critical Race Theory “, which is not currently taught in K-12 schools.

Another of the 11 budget bills, the one that funds universities, has the same problem, but the other nine bills making up the budget were passed by the House on Thursday and are ready to be sent to Ducey for his promised signature.

Friday’s big fight was over the new loophole for those affected by Proposition 208 who can claim their income is from a small business, trust fund or estate.

Arizona small business profits are currently taxed on personal income tax returns. New tax voters approved in November impose a 3.5% tax surtax on income over $ 250,000 for individuals or over $ 500,000 for couples. The tax cuts approved this week as part of the state’s $ 12.8 billion spending plan shield them from this, setting the maximum rate with the surtax at the current maximum tax rate of 4.5%. .

An earlier version of the small business tax bill would have cut nearly half of the $ 827 million that is expected to be raised for supplemental school funding, according to estimates by Legislative Budget analysts. An amendment added on Friday reduced that even further, although Republicans said they were unsure by how much, by removing the proposed maximum rate of 4.5%.

“It would create a loophole for the wealthiest in Arizona to market themselves as a small business so they could avoid paying the 3.5% surtax that the Arizonans have said they want to support public education,” said Democratic Minority Leader Reginald Bolding.

Republicans argued that supporters of the initiative falsely sold it as not affecting small businesses, so they felt compelled to address this issue.

“They said it wasn’t a business tax, it was crass disinformation,” said GOP Representative Steve Kaiser of Phoenix.

All 31 members of the GOP House supported the measure. He is now returning to the Senate where he had previously gone with the sole support of Republicans, for final approval before heading to Ducey’s office.

The governor expressed contempt for the voter-approved tax, saying it would hurt the state’s economy and promised in March to see it gutted either by legislation or by the courts. The Arizona Supreme Court is considering a constitutional challenge to the new tax and could render its ruling at any time.

The tax cuts approved by the budget set a flat tax of 2.5% on all income levels that will be phased in over several years once income projections are met, people subject to the new education tax. paying 4.5% at most. Under the current progressive tax structure, taxes start at 2.59% on the first $ 26,500 of income and increase to a maximum of 4.5% on income over $ 159,000.

The state will still direct whatever it still collects under Proposition 208 to a new fund. Half will be used to increase the salaries of accredited teachers, 25% to increase the salaries of cafeteria workers, bus drivers and other support staff, and the rest for teacher training, vocational education. and other initiatives.

Supporters of Proposition 208 have pledged to fight the changes, whether in court or at the ballot box. The measure was a consequence of a 2018 teachers’ strike that earned them increases but failed to meet their other school funding targets.

“We’ve been in meetings with over 30 other groups across the state looking at all options to protect Prop 208 and what voters want from it,” Joe Thomas, president of the Arizona Education Association said Friday. .

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About Natalee Broderick

Natalee Broderick

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