By Howard Fischer
Capitol Media Services
PHOENIX — With unexpected cash and a change in laws on Internet taxes, Republicans plan to cut individual income taxes this coming year by about $325 million.
And that controversial $32-a-vehicle registration fee instituted late last year to pay for the highway patrol will go away — by 2024.
But if you’re a big user of online retail, be prepared to pay more in sales taxes.
The nearly $11.9 billion budget unveiled Monday includes some new dollars for targeted programs, ranging from $35 million in one-time dollars for the state’s three universities to $14.2 million for rural community colleges to use as they want.
There is some cash for Maricopa and Pima community colleges in the plan agreed to by Gov. Doug Ducey and GOP leaders. But these are earmarked for specific programs: health education in Maricopa and aviation training at Pima.
Other plans include:
Restoring state funds for the Kids Care program that provides subsidized health insurance to the children of the working poor;
Targeted pay raises for corrections officers, child safety workers, highway patrol and employees at the Arizona State Hospital;
$10 million for programs to deal with the homeless;
Giving schools $15 million to hire either counselors or school safety officers — police — at their choice;
Providing the $20 million sought by Pinal County farmers to help drill new wells;
Restoring some — but not all — of the dollars cut from schools in the “district additional assistance” account that is earmarked to pay for things like books, computers and school buses.
And the package will also include depositing $542 million into the state’s rainy day fund over the next two years, bringing the balance to $1 billion.
What’s enabling the tax cuts and the new spending is the state is getting money that it did not anticipate.
It starts with the changes in federal income tax law that will result in higher taxes for some Arizonans who itemize on their state returns. For next year the figure will be about $217 million.
Republican lawmakers also want to take advantage of a ruling last year by the U.S. Supreme Court that allows states to impose their sales taxes on online purchases made by their residents. That is expected to bring in another $85 million.
And the package also counts on using some of the current windfall to pay off about $190 million in debt, a move that will eliminate the need to pay $24 million a year in debt service.
Rather than spend that additional cash on programs — the plan preferred by Democrats — the deal gives most of that back to taxpayers.
The big change is that the state standard deduction, now $5,312 for individuals, will more than double to $12,000, double that for married couples filing jointly. That will help not just those who already take the standard deduction — people with few expenses to itemize — but also eliminate the need for some people who were itemizing to go through that exercise.
But that’s not all.
The deal also allows those who take the standard deduction to also get an additional partial deduction for charitable donations. There also will be a new tax credit of $100 per child.
And there’s another income tax break for those earning more than $26,500 a year.
Right now the first $26,500 of income is taxed at 2.59%. That goes up to 2.88% for the amounts between $26,501 and $53,000, with higher percentages for amounts above that, all the way up to 4.54% — for amounts exceeding $158,996.
The new law would eliminate the 2.88% tax bracket, taking that 2.59% rate for all earnings up to $53,000. For someone earning at least $53,000 the break would be about $114 a year.
All of that has proven too much for Democrats who wasted no time in criticizing the plan.
Sen. Martin Quezada, D-Glendale, questioned why the plan does not restore all of the funds cut from the district additional assistance account. Even with the new infusion it will remain about $130 million short of what the schools are supposed to get.
He said schools are having trouble hiring and retaining staff, even with built-in pay raises for teachers.
“We’re doing a lot of positive things on K-12 education,” said Daniel Scarpinato, the governor’s chief of staff. Aside from the dollars for teacher pay there is new cash for career and technical education as well as some additional dollars for building repairs and construction.
But Mr. Scarpinato said it’s not that simple. He said just because the state has more money right now doesn’t mean it should spend it.
“We do need to prepare for the future,” he said, citing what happened a decade ago when the bottom dropped out of the economy and the state found itself $3 billion in the hole. That resulted in $1 billion in cuts, $1 billion in temporary taxes and $1 billion in borrowing.
“If we just go on a spending spree and don’t think about how do we prepare for the inevitable, we’re just going to make promises we can’t fulfill,” Mr. Scarpinato said.
But Sen. Lela Alston, D-Phoenix, said the state would be able to do both if Ducey and the Republicans were not in such a rich to give away revenues. She said, for example, there’s no reason for the state not to keep the windfall from the changes in federal tax laws.
“Dollars that used to go to Washington are now paid to Arizona,” Ms. Alston said. “These revenues should be used for Arizona priorities like education, the homeless crisis, infrastructure, health care and support for the elderly and disabled,” and not to permanently reduce the state’s tax base.
She was also critical of the state using the $85 million it anticipates in taxes from online sales to finance the income tax cuts, calling those sales tax dollars “tax revenue that is already owed to the state but is not being paid due to lack of enforcement.”
Democrats also were critical for the plan not doing more for higher education, especially the university system which has seen state support for tuition for residents drop from about 75% more than a decade ago to less than half that now.
Mr. Scarpinato acknowledged that the $35 million in unrestricted funds, to be divided up among the three universities based on enrollment, is just a one-time infusion. But he said there is other cash going to the schools, like an additional $15 million to help them train new public school teachers.