DALLAS — An income tax formula that reduces revenue by $15.4 million in the 2017 fiscal year won Senate approval, despite the state's anticipated $1 billion budget deficit.
Senate Bill 1088 passed on an 18-11 vote in the Senate on Monday and was returned to the state House, where it has already won preliminary approval.
The bill would prevent inflation-based increases in income from being taxed at the higher marginal rate of a successive bracket, according to a fiscal note on the bill. Brackets would not be decreased in years when the consumer price index decreases.
The bill is estimated to reduce revenue by $15.4 million in fiscal year 2017 and $24.7 million in FY 2018. The amount of reduced revenues is expected to increase in each subsequent year that brackets are increased for inflation.
Current law provides a one-time inflation adjustment of the tax brackets for the fiscal year 2016.
Based on Department of Revenue estimates, the bill would reduce local government distributions by $2.3 million in fiscal year 2019 and $3.7 million in fiscal year 2020.
Gov. Doug Ducey sought passage of the measure. He has promised to erase an estimated $1 billion in the next two budgets without a tax increase.
Sen. Debbie Lesko, R-Peoria, one of 14 sponsors of the bill, argued it would prevent some middle class taxpayers from being cast into higher tax brackets.
Former tax accountant Sen. Andrea Dalessandro, D- Sahuarita, said research has shown tax cuts have not stimulated the economy or created jobs.
Ducey's predecessor, Republican Jan Brewer, convinced the Republican-controlled legislature to pass a temporary 1-cent sales tax increase, which won voter approval in 2010 and expired in 2013.
The temporary tax provided the state a surplus of more than $700 million in the 2014 fiscal year and a $450 million deposit to the rainy-day fund. During the three-year tax increase, lawmakers phased in a $538 million tax-cut package.
Arizona has $2.5 billion of lease-revenue debt for a lower-than-average per capita debt load of $902. Standard & Poor's provides an issuer credit rating of AA-minus with a stable outlook. Moody's Investors Service has a positive outlook on its Aa3 rating.
