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Teachers pack room as Senate panel OKs cut to state tax collections

By Howard Fischer Capitol Media Services;

PHOENIX — Arizona investors could soon be in line for a tax cut, with a big chunk of it going to 183 multimillionaires.

On a party-line vote, the Senate Finance Committee voted Wednesday to double the amount of capital gains that investors can deduct from their state income taxes before computing how much they owe. Legislative budget analysts say the change, when fully implemented by 2023, would cut state revenues by about $23 million a year.

Wednesday’s vote came as dozens of teachers from the Phoenix area who had called in sick packed the committee room to object to another cut in tax collections. David Lujan, director of the Arizona Center for Economic Progress, cited their presence as he told lawmakers tax cuts have real implications on the state’s ability to fund its needs.

Gov. Doug Ducey, in a radio appearance Wednesday, said he is doing all he can to put more dollars into K-12 education and teacher salaries. He said teachers are “doing an excellent job,” citing the fact that Arizona leads the country in improvement in math and reading scores.

The presence of teachers at the committee hearing rather than in their classrooms drew his rebuke. “People are, of course, allowed to speak, allowed to make their voice heard,” Ducey said. “But I want to thank the 50,000-plus teachers that showed up for work today in a public school classroom and are teaching our kids.”

The governor said it was not necessary for teachers to call in sick. “If people want to come down to the Capitol and make their voice heard, I’m there pretty much all day, every day,” Ducey said. “You can do this after school.”

Legislative committees, however, meet during normal school hours. And Lujan said teachers and others have a vested interest in what they are doing.

“This is a public education bill,” he said. “It’s a health-care bill, it’s an infrastructure bill, it’s a higher education bill. Any time you’re going to drain another $23 million out of our state general fund, it reduces the investments you can make in priorities many Arizonans care about.”

House Speaker J.D. Mesnard, R-Chandler, who is pushing the tax-cut plan, does not see it that way.

Federal tax law provides different treatment for capital gains versus ordinary income. Arizona does not. But to make up for that, the law allows investors to report just 75 percent of the profits from capital gains on investments that have been made since 2011.

Mesnard’s legislation seeks to reduce that figure beginning next year to 50 percent, applicable to investments starting this year. That would cover earnings on land and buildings, and stocks and bonds.

The first-year impact is $6.4 million, increasing eventually to $23.2 million.

Mesnard acknowledged the staff analysis, but argued it does not consider how the state economy might benefit if people invest more money.

Sen. Rick Gray, R-Sun City, agreed. “If people get these reductions in capital gains tax, they’re investors. They’re usually not going to just put it under their pillow.”

Sen. Steve Farley, D-Tucson, cited an analysis he said showed just 1 percent of the tax break would go to people earning between $10,000 and $20,000 a year.

At the other end of the earning spectrum, he said, 12 percent of the $23.2 million would benefit those in the $200,000 to $500,000 range, 26 percent to those making $1 million to $5 million, and another 26 percent to Arizonans with reported state income in excess of $5 million.

“There’s only 183 of those people” making $5 million-plus, Farley said, and their average tax cut would be about $27,000 a year.

“I do not see any benefit to the people of Arizona in taking $23 million a year that could be invested in ourselves and give it away to people who already are getting a massive handout from the recent federal tax bill,” Farley said.

“Our teachers absolutely deserve a raise,” said Sen. Warren Petersen, R-Gilbert. But he voted for the tax cut, insisting there are dollars out there for pay hikes — if the state were not spending so much on social welfare programs. For example, he said the state spends $13 billion a year on Medicaid, including both state and federal dollars.

“That’s a ton of money,” he said. “I have consistently voted against expansions of the welfare state.”

Sen. David Farnsworth, R-Mesa, said more money would end up in teacher paychecks if school districts did not divert dollars to other priorities.

Said Sen. Sean Bowie, D-Tempe: “I have yet to hear one of my constituents say, ‘We need to reduce capital gains taxes for people making over $500,000 a year.’”


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