PHOENIX -- A scaled-back version of a tax cut package for business still would cost the state nearly $650 million a year when fully implemented -- and $60 million in just its first year.
That's the analysis of the staff of the Joint Legislative Budget Committee which reviewed the proposed new language for HB 2250. The measure is set for a hearing Monday by the Senate Finance Committee.
As originally approved by the House, the package would have reduced state revenues by $941 million when all the provisions took effect. And the first-year costs were pegged in excess of $171 million.
But even with the reductions, the modified price tag -- and the timing -- could prove to be problematic.
It comes as lawmakers just struggled to plug a $2.6 billion hole in the budget for the coming fiscal year.
In fact, the plan actually doesn't even balance the books. It relies on voters approving a plan in November taking $325 million from a fund for early childhood development and another $123 million that had been earmarked for purchase of state trust land to keep it off limits to developers.
More significant, it also is built on the presumption that voters will agree to hike the state sales tax by a penny, to 6.6 percent, at a special election May 18. That levy, which would last three years, would generate about $918 million in its first year.
The potential political problem is that the tax cut plan would slash state revenues by more than $60 million in the 2011-12 fiscal year and nearly $81 million the following budget year.
Those are the final two years of higher sales taxes, assuming voters approve.
Democrats, including gubernatorial hopeful Terry Goddard, already have seized on the overlap, charging that lawmakers want to hike taxes on consumers even as they give tax breaks to business. And even Gov. Jan Brewer, the prime proponent of the May 18 tax hike, said she wants to be sure that nothing in any plan to help businesses undermines public support for higher sales taxes.
House Speaker Kirk Adams, R-Mesa, who crafted the tax cut package, said he doubted the accuracy of the revenue loss figures, particularly for the early years. But Adams said that, even if there is an overlap of business tax cuts and higher sales taxes, that should not deter lawmakers from approving the plan.
"If we don't address the jobs deficit at the same time we're addressing the budget deficit, we're fooling ourselves," he said.
Adams said the Arizona economy remains in a recession, with the unemployment rate now at 9.5 percent. He said that won't change until the state convinces companies to locate and expand here.
He said the lower taxes will make Arizona "the most competitive state for business west of the Mississippi."
Anyway, Adams said, this plan is substantially different from what the House approved.
First, it scuttles plans to cut individual income taxes. That cuts $300 million a year off the final bill.
The real change for what's left, though, is more a question of timing.
For example, the plan still seeks to eliminate the state property tax. But it would start the four-year phase-out in 2014 rather than next year.
It also would slash corporate income taxes by 28 percent over five years. While the timing itself hasn't changed, the schedule has: The costs for the first two years would be just $27 million, versus $113 million under the original plan.
That would be made up, though, with bigger cuts in later years, with the ultimate price tag still ending up in the $200 million a year range.
The measure also would reduce the share that businesses have to pay of locally approved bonds and overrides. While that has no effect on state revenues, it would shift the burden to owners of residential property.
Cost first Ultimate annual
Tax reduction two years cost FY 2018
(figures in millions of dollars)
Eliminate state property tax $0 $323.8
Corporate income tax rate cut $37.2 $212.2
Small business capital gains subtraction $71.3 $52.5
Accelerated depreciation of business equip. $8 $8
Alternate corporate income tax option $0 $46.7
Divert withholding tax on new jobs $4.9 $6.4
— Source: Joint Legislative Budget Committee