PHOENIX — Gov. Jan Brewer does not think much of proposals by some of those who would succeed her to eliminate the state income tax.
The governor said it would be wrong to have Arizona have virtually its entire budget built on sales taxes. That’s pretty much what would be left if income taxes went away, as the state all but eliminated its own property tax years ago.
“I think that you need a balance,” she said in an interview with Capitol Media Services.
Beyond that, Brewer said it’s an illusion to sell the idea that eliminating the state income tax somehow would mean overall lower taxes. She said the needs remain.
“It’s going to come from all of us, one way or the other,” the governor said.
Three GOP hopefuls have targeted the levy.
Secretary of State Ken Bennett has said he would replace the lost revenues both by expanding the transactions now subject to the state’s 5.6 percent sales tax or coming up with some sort of broad-based “consumption” tax on every transaction.
Sen. Al Melvin, R-Tucson, said he presumes that eliminating both taxes outright would generate sufficient new business — and presumably sales taxes — to make up for the loss.
And state Treasurer Doug Ducey is thinking along the same lines, albeit in a slower fashion: Reduce the tax with the goal of eliminating it by growing the economy.
But that presumes some massive shift.
Right now individual income generate close to $3.9 billion a year out of the state’s $8.7 billion in ongoing revenues. Add corporate income taxes and the total tops $4.4 billion — $200 million more than Arizona collects in sales taxes.
The balance comes from a variety of levies ranging from a tax on insurance premiums to luxury taxes on alcohol and tobacco, lottery profits and miscellaneous fees.
That massive dollar shift from income to sales taxes is only part of the issue. Brewer said she is concerned with any move that makes the state budget that reliant on sales taxes.
“I think it’s too volatile,” the governor said of the sales tax, making state spending too reliant on one particular levy.
Fiscal problems aside, Brewer said there’s also a political reality with ideas of replacing income taxes with a broader sales tax base.
“You’re not going to get it through because you’ve got too many special interests out there that are going to push back, push back, push back,” she said. And Brewer said that goes beyond specific business groups each seeking to keep its own exemption from income taxes.
“Certain people don’t like taxes on services,” she said, saying there have been prior battles over the issue.
“We have been through this with your drycleaners and your barbers and your hairdressers, et cetera,” the governor explained. “It is an issue that’s been debated over and over and over.”
Anyway, Brewer questioned the proposition by candidates who want to eliminate the state income tax that move would somehow make the state more competitive or attractive — and therefore generate more business to pay whatever taxes are left. The governor said when she travels Arizona gets “heralded” for its tax system.
“Our taxes are reasonable and comparable,” she said.
And, in the case of income taxes, they’ve also dropped — sharply.
In 1990 the state’s top tax rate was 7 percent for individuals with an adjusted income of $150,000 or more or couples earning at least $300,000. That’s now just 4.54 percent.
Even the corporate tax rate which was 9.3 percent in 1990, dropped to slightly below 7 percent — and is set to drop, in steps, to 4.9 percent by 2017.
The other Republicans seeking to replace Brewer have not pushed the idea of eliminating income taxes.
At a recent forum, both former Mesa Mayor Scott Smith and businesswoman Christine Jones called the proposal unrealistic, with Smith calling such promises “great for a campaign.”
Former Maricopa County Attorney Andrew Thomas said he supports reducing individual income taxes as much as possible “consistent with having sufficient state funds to secure the border.”
Former California Congressman Frank Riggs has not said anything publicly about the issue.
Sources of revenue (in millions of dollars):
Individual income taxes — $3,868.1
Corporate income taxes — $573.4
Sales and use taxes — $4,290.6
Property taxes — $20
Luxury taxes — $59.7
Estate taxes — 0
Other taxes — $3
Licenses, fees, permits — $124.7
Interest earnings — $12
Lottery profits —$84.6
Other — $97.1
— Source: Governor’s Office