SE Valley Times

Arizona lawmakers are discussing legislation that could make cuts to income tax rates, but there is a small chance the rates would return to their current numbers. 

This new legislation would make it so income tax rates are cut automatically, but budgeting officials need to figure out Arizona's annual surplus for the legislation. After, the Department of Revenue would have 50% of income tax rates go back to taxpayers. 

Sen. J.D. Mesnard wrote the legislation and said it would let the state budget continue to increase and provide the ability for lawmakers or voters to create new programs. 

Some Democrats don't like the idea of the new legislation. 

“The biggest problem with this is the ratchet-down effects,” Rep. Mitzi Epstein told Tucson.com. “The problem is that, if in one year, the DoR is forced to decrease income tax rates, they never get to go back up again."

But Mesnard said he structured his legislation with a single ratchet. 

“The idea behind these is to give tax relief and use growth in the economy that we get from the tax relief to lower taxes,” Mesnard said.

Even with this new legislation, Mesnard said lawmakers could still increase tax rates, but it would be difficult to do so. He said the highlight of his idea is the flexibility of the plan. 

Automatic cuts will happen once the state has started receiving more money than the prior year's budget. 

In 2011, arguments for a similar plan said that these cuts were necessary to restrain the government's growth. This similar 2011 legislation was vetoed by Gov. Jan Brewer, who called it "too restrictive."

Mesnard's plan is different from the previously proposed one, because his only cuts half of the excess revenue. The amount cut would also not be based on all of the excess revenue, but only on those considered "structural," he said. 

Budget analysts said they expect a surplus to be approximately $1 billion, according to Tucson.com. They said $685 million of the surplus is expected to be revenues that won't repeat themselves in future years. This leaves approximately $300 million to go into ongoing revenues. 

If the new legislation were in effect now, only $150 million would return to Arizona taxpayers. 

Mesnard said the plan would use this year's revenues as a base, which would automatically increase each year according to inflation, growth and new programs. This means if there are slow revenue years, there may not be reduction rates at all. 

The plan is also designed so that the base continues to grow, Mesnard said. 

A taxpayer bill of rights is different from Mesnard's legislation. Democrats said they would accept a taxpayer bill of rights. 

In Colorado, a version of a taxpayer bill of rights gives rebates on individual income instead of cutting income tax rates. 

“I entertained that,” Mesnard said. But he decided to structure his legislation differently so it would not take into account one-time surpluses. 

Mesnard said a taxpayer bill of rights is still an option. 

“I’m open to that if there’s a lot of pushback on the idea of using ongoing surpluses to permanently buy down tax rates,” he said.

The House version of Mesnard's legislation was approved and Epstein said this would result in a loss of $64 million in the first year. The amount lost would grow each year. The second year would lose $71 million and the third $110 million. But Mesnard said Epstein's numbers were based on an earlier version of his legislation. It has since changed to consider the growth of programs. 

Mesnard also said his legislation wouldn't interfere with Invest in Ed's proposal to increase income taxes on the most wealthy in the state.