A Senate panel voted Thursday for a major revision in the state tax code that would mean lower bills for about 13 percent of Arizonans -- and higher ones, on average, for everyone else.
The legislation, approved on a 4-2 party-line vote with Republicans in the majority, would replace the state's graduated income tax structure with a single flat rate.
Preliminary estimates put that new figure at 2.13 percent. And that is lower than any of the current rates which range from about 2.5 percent to 4.5 percent.
But to bring in the same amount of money as the current system, the plan would eliminate all deductions. That includes some big ones, like interest paid on home mortgages and charitable contributions.
And the exemptions from income that now exist for each person living in the home also disappear.
Rep. Steve Court, R-Mesa, who already has shepherded the proposal through the House, said the idea is fairness.
"This changes the way we look at how we tax income,'' he said. "It also simplifies the process.''
Court said the idea of eliminating all those exemptions and deductions make sense "so that the government does not incentive how you spend your money and you don't have a situation where a group of you all making $24,000 a year would all pay a different tax.''
But what Court called a "fair process'' drew the ire of Sen. Paula Aboud, D-Tucson.
She pointed out the net effect is going to be a tax shift from those at the top of the income scale to those lower down. Figures crafted by the Joint Legislative Budget Committee conclude the break point is around the $100,000 range, with everyone below that paying something more than they do now.
He predicted that the average tax bill for those below $100,000 will be going up $200 a year.
"It's not going to be any excessive tax increase,'' Court said.
Aboud bristled at that conclusion.
"Two hundred dollars to some people is a decider between food, medicine and a whole lot of things in these hard economic times,'' she said.
"This feels insulting for the people that are struggling, when they're losing their health care and they've lost their job and their losing their home,'' Aboud continued. "There are a lot of people that are suffering and this bill heaps that onto them.''
Court defended the plan.
"It's just getting down to a very low rate, taxing basic income,'' he said.
Court acknowledged that, in the interest of keeping the plan as pure and simple as possible, he was going after some sensitive areas. That includes eliminating exemptions for children.
"If somebody's childless, should they pay a higher tax to compensate for somebody who has children?'' he asked.
Sen. Steve Yarbrough, R-Chandler, had his own concerns. He specifically called eliminating the deductions for mortgage interest and charitable deductions "a challenge.''
"But if we're going to make significant reforms -- and there are some compelling reasons to do that -- we're going to have to take the bitter with the sweet,'' he said.
Sen. John McComish, R-Phoenix, agreed.
"I, too, like the idea of keeping the mortgage interest (deduction),'' he said.
"But I also understand it goes against the philosophy,'' McComish continued. "And so I have a dilemma there.''
McComish said, though, if the state is to go down the path of a flat tax, there will have to be compromises.
"I do believe the lower and the flatter we can make a tax, the better it is for our economy,'' he said.
Thursday's vote came despite concerns expressed by some involved in the profession of preparing taxes.
Jeff Hill, a former state senator from Tucson who now represents the Arizona Society of Practicing Accountants, said it's not a question of trying to hang on to business.
"We are getting wealthy off the Congress making all of the strange things they do with the federal (tax) code,'' he said.
But Hill said that making this kind of systematic change in such a rapid fashion could have "unintended consequences.'' He said prior experience in Arizona is when legislators push through major changes in the tax code in a rapid fashion it can take years to undo the damage.
Hill did brush aside concerns that eliminating the state tax deduction for interest on home mortgages would result in fewer people being able to afford houses. He said the make-or-break for most buyers is the deduction on the federal tax returns which will remain unaffected.