Commission Calls For Big and Small Changes To State Tax Code

ARIZONA DAILY STAR

July 11, 2003

PHOENIX — A state commission charged with recommending ways to improve Arizona ’s tax code is hearing mixed messages, ranging from calls for sweeping change to pleas to take only small steps.

Labor unions and social-welfare activists on Thursday offered separate but sometimes overlapping proposals for a new state property tax, higher income taxes for wealthier individuals and less reliance on the sales tax. The advocates, including some calling for increases in state revenue, urged the Citizens Finance Review Commission to take into account how much money the state needs to provide services when it makes its own recommendations.

“No one expects that this is going to be painless,” said Michael McGrath, Arizona AFL-CIO secretary-treasurer.

Meanwhile, business groups urged the commission to provide them with a few long-sought changes but to refrain from taking steps that could create new problems.

“Excuse our cynicism, but please do no harm,” said Kevin McCarthy, president of the business-backed Arizona Tax Research Association.

Gov. Janet Napolitano, a Democrat who took office in January, appointed the 21-member commission to make recommendations for consideration by the Legislature next year.

The commission is considering a wide gamut of tax issues, including the continuation, expansion or reduction of such major revenue sources as the state sales tax, the individual income tax and property taxes.

The Children’s Action Alliance urged that the state reduce the percentage of state revenue now coming from the sales tax — now 52 percent — while increasing the reliance on the individual income tax (36 percent).

However, the income tax should be made more “progressive” to tax higher-income taxpayers more heavily to reduce the burden on lower-income taxpayers, the alliance said.

It also urged the commission to reject proposals to structure the tax code in ways intended to promote economic development and to instead focus on the core mission of collecting revenue for government services.

While the Children’s Action Alliance’s recommendation did not specifically call for increasing state revenue, the Arizona Education Association’s would do that by establishing new state property tax to pay for building schools and other education costs.

The state eliminated most of its property tax in the 1990s but local school districts’ property taxes provide part of the state’s funding of K-12 schools, with the costly school building program now funded by the state.

The AEA, a teachers union, also urged expanding the sales tax to apply it to more transactions, including many services and possibly food sales, and hiking the income-tax burden on higher-income taxpayers. Added up, those changes should be fairer and stable but not produce extra money for the state, the AEA said.

The AFL-CIO also recommended making the individual income tax “more progressive,” while also reducing the reliance on the sales tax, raising the gas tax and implementing a new tax on real estate taxes.

“What working families want most in a tax system is fairness,” McGrath said.

ATRA, the tax research group, urged the commission to limit its recommendations to “targeted reforms” in property taxes and selected other areas because more sweeping changes could undermine the state’s economy.

“There are real problems in the tax system that can be made worse,” McCarthy said.

McCarthy and Jay Kaprosy, a Greater Phoenix Metropolitan Chamber of Commerce vice president, urged the commission to support a corporate income tax formula change that would benefit manufacturers. They also backed a proposal to make the property tax assessment ratio on business property the same as that on residential property for taxes approved by voters in the future for local governments’ bond issues and budget overrides. The business ratio is now 2.5 times higher than the residential one.

Such a change would make it harder to win voter approval because homeowners would pay a larger share of the bond or override costs but encourage businesses to invest in Arizona , Kaprosy said.

Napolitano said she appointed the commission to review the state’s tax policies and recommend improvements to both stimulate the economy and make the system fair, equitable and predictable. The outcome of the tax review likely will have a bearing on next year’s state budget as well. 

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