Arizona: Once again leading the way

Senate panel OKs bill to flatten Ariz. income tax

By PAUL DAVENPORT , 03.25.11, 11:14 AM EDT

PHOENIX -- A "flat tax" bill to rewrite the state individual income tax is nearing the finish line at the Legislature, setting the stage for changes that would have the Arizona's wealthiest taxpayers paying less while nearly nine of every 10 Arizonans pay more.

The Senate Finance Committee approved the Republican-sponsored bill on a 4-2 party line vote Thursday. The House has already approved a version of the bill.

The changes would be phased in over three years starting in 2013. It would not affect federal income tax paid by Arizonans.Major changes in the bill include eliminating the standard deduction, dependent exemptions and most other state deductions while flattening the current five rates into one lower rate of 2.13 percent. Current rates range from 2.59 percent to 4.454 percent depending on income levels.

As passed by the House, the bill would have produced an additional $50 million of annual revenue for the state. However, the Senate committee amended the bill so that it would not significantly add or subtract from total state revenue, according to an analysis by the legislative budget staff.

A legislative budget staff analysis indicated that taxpayers with federal adjusted gross incomes below $100,000 generally would pay more state income tax under the bill while those with higher incomes would save money. Taxpayers with incomes below $100,000 account for 88 percent of state income tax filers, according to the analysis.