Arizona lawmakers are trying to figure out what kind of tax cuts would give them the biggest bang for the buck. They’ve debated reducing personal income taxes, breaks on property taxes and exemptions for business equipment.
Only thing is, pretty much everybody agrees there just isn’t that much extra money in the state budget this year. With little financial wiggle room, the fight among lawmakers will be over which tax cuts would spur the most economic growth without draining state coffers.
Where lawmakers stand on the issue comes down to philosophy.
Sen. Barbara Leff, R-Paradise Valley, said she looks for tax cuts that would do the most to encourage economic development.
“I would like to see the business personal property tax exemption increased so we don’t penalize companies that have capital investment in Arizona,” said Leff, chairwoman of the Senate Commerce Committee.
In Arizona, all parcels of land and buildings are subject to property taxes. But businesses also pay a tax on the value of their equipment, which ranges from heavy machinery to file cabinets and computers.
In 1996, voters approved an exemption for businesses whose equipment was valued at less than $50,000. That also meant businesses with equipment valued higher than that would be allowed a $50,000 write-off. That figure has been adjusted for inflation and now stands at $61,142.
Several measures have been proposed to increase the exemption to $150,000 or eliminate the tax entirely.
Rep. Michele Reagan, R-Scottsdale, said she’s made it a priority to raise the exemption threshold. And she’s even cobbled together bipartisan support, convincing Rep. Ben Miranda, D-Phoenix, to sign on as a co-sponsor.
That change would require voter approval in 2008, as would a more far-reaching proposal by Rep. Rick Murphy, R-Glendale. He wants to repeal the entire tax on business equipment, much as voters did with individual personal property years ago.
“We claim that we want to lure businesses that have good jobs and good income,” he said. “In this day and age, the vast majority of those type of jobs are going to be in sectors that are technology intensive, expensive-equipment intensive.”
There is another property tax measure on the table — but this one would give a break to individuals.
Last year, flush with cash, lawmakers decided they didn’t need the money from a special property tax for education.
Republicans actually wanted to repeal the tax outright. But the deal they cut with Gov. Janet Napolitano resulted instead in a three-year suspension of the tax.
The tax returns in 2009 unless lawmakers act before then to eliminate it permanently. It would have raised $215 million this year.
Senate President Tim Bee, R-Tucson, said many Republicans want to make that permanent. But he said there is no rush to act, as legislators could approve that change next year.
Meanwhile, not everyone puts the highest priority on property tax relief.
Another measure being considered in the House would reduce corporate income tax rates to 5.97 percent from the current 6.62 percent.
Rep. Kirk Adams, R-Mesa, said many of the states with which Arizona competes for jobs have no corporate tax. That includes Nevada, Texas and Wyoming. And Colorado taxes corporations at 4.63 percent, he said.
Adams and others also are pushing for a 5 percent cut in all individual income tax rates. He said this helps not only individual taxpayers but also many small businesses.
That could prove a more difficult sell in the Senate.
Bee pointed out that last year’s budget deal with the governor already included an immediate 5 percent cut in individual income taxes, with another 5 percent this year.
Arizona lawmakers are pushing ahead with a series of bills to slash various taxes. Proposals so far include:
• Cutting individual income taxes by 5 percent;
• A 5 percent reduction in corporate income taxes;
• Making permanent a three-year suspension of the special state property tax for education;
• Accelerating the depreciation rate used to value business property;
• Allowing businesses to escape property taxes on a larger amount of business equipment.