AZ Central – The Arizona Republic – Opinion
Arizona slashed taxes for the rich, and now the rest of us are paying for it
Dave Wells – January 12, 2024
The state budget will take center stage as the Arizona Legislature begins its session.
Fiscal year 2024 is more than $800 million in deficit, and the fiscal 2025 deficit, based on a base budget that excludes $2.3 billion from the FY24 budget, is projected to be slightly worse, creating a total shortfall for both years of $1.71 billion.
While legislative leaders like House Speaker Ben Toma dismiss the issue as a mere “cash flow problem,” the reality is in 2021, the Arizona Legislature and Gov. Doug Ducey eliminated progressive income taxes, delivering a massive boon to the wealthy.
Progressive income taxes place higher marginal rates on those who are most able to afford it. The wealthy were the prime beneficiaries when the top income tax rate of 4.5% was reduced to a flat rate of 2.5% for all taxpayers.
Tax cuts for the rich slashed revenue
The Grand Canyon Institute has referred to the tax rate change as pizzas vs. Porsches.
Most Arizonans do not realize their income tax payments even changed because the difference was so little, but the wealthiest Arizonans saw tax savings in the thousands or even hundreds of thousands of dollars.
The Grand Canyon Institute estimates that 70% of the value of reduced tax payments went to the wealthiest 5% of income tax filers who earn $200,000 or more. The net cost of their reduced tax payments is $1.3 billion in fiscal 2024 and will be $1.4 billion in fiscal 2025.
Fixing a $400m shortfall: Is surprisingly easy
That math is pretty simple for the state’s fiscal 2025 budget. If Arizona recovered the $1.4 billion in tax revenues, the projected deficit is replaced with sufficient revenue to address critical state needs.
The so-called “cash flow problem” is based on a premise that the state will continue to minimally or not fund strategic areas.
And that makes statements like Senate President Warren Petersen saying, “we are going to shrink government a little bit, and that’s not a bad thing” particularly imprudent.
Now, we can’t afford things like this
It’s not like the state was already sufficiently funding key areas. Consider this sample of areas that are likely to be left out of next year’s budget, thanks to the deficit:
- K-12 education. The fiscal 2024 budget included a supplemental $300 million for K-12 education, an inadequate amount given the strain on public schools with one in six positions vacant at the start of the academic year. That supplemental appropriation is not included in the baseline fiscal 2025 budget.
- Housing. Even though metro Phoenix rents have leveled off, after rising 80% from 2016 to 2021, evictions jumped 23% in the metro Phoenix area from 2022 to 2023. The expiration of federal emergency rental assistance has contributed to household financial problems. The state could help to fill the gap while pushing to increase the supply of housing by fulfilling the Department of Housing’s fiscal 2025 budget requests for $50 million for the housing trust and $40 million for unsheltered services. Other needs include funding for summer daytime shelters, which were previously covered by federal COVID-19 dollars that have also expired. These expenses are not in the baseline budget.
- Dental care. Arizona currently only offers an emergency dental benefit for adults on Medicaid (AHCCCS), which means if you can’t get a cavity filled, you can have the tooth pulled if it abscesses. Many people with severe dental pain go to the emergency room at a cost of more than $2,000 per visit to the state, even though they receive only palliative care. For a modest investment, the state could provide basic preventative services to improve dental health and reduce the use of the emergency room. This may cost as little as $10 million, since the federal government covers most of the cost. This policy change is not in the baseline budget.
- Universities. Arizona’s public universities are asking for funding for teachers academies to address our teacher shortage and provide Arizona Promise scholarships for lower income students to be able to afford college and improve the state’s overall college attendance rate. These investments would be at least $50 million. These expenses are also not in the baseline budget.
Real leadership at the Legislature would involve restoring progressive income taxes, so the state can make critical investments that enhance the stability and success of all Arizona families and children.
Dave Wells holds a Ph.D. in political economy and public policy and is research director of the Grand Canyon Institute.