Sunday, March 27, 2011

Arizona Slashes Education, Health Care for the Poor - Proposes Flat Income Tax

Arizona, like much of the nation - has it all backwards when it comes to balancing the state budgets. Federal cuts have placed more of the burden on the states, and most states are running deficits, which is constitutionally illegal for much of the country (why this is so for states and not the federal government is an interesting question).

In Arizona, the Republican led legislature keeps cutting spending rather than raise taxes (the 1 cent state sales tax was an exception, and it expires next year). This year is their fantasy come true - cutting education and health care, while proposing MORE tax breaks for businesses and the wealthy.

Here are this years big cuts, as detailed by The Tucson Weekly:

The budget pretty much does everything that conservatives have dreamt of doing in Arizona: K-12 education is cut by $242 million. Universities are cut by $235 million. Community colleges are cut by $63 million. More than a quarter-million people lose their state-subsidized health insurance. And on and on and on.

Sandy Bahr, legislative lobbyist of the Sierra Club, notes that the budget permanently reduces a fund dedicated to cleaning up contaminated water sites from $15 million to $7 million a year, and eliminates any general-fund contribution to the Arizona Water Protection Fund. Hey, who needs clean water?

Lawmakers are also swiping more than $2 million in user fees from state parks and nearly $1.5 million for the State Lake Improvement Fund, as well as smaller amounts from other non-taxpayer funds that support the parks. A separate bill requires the Arizona State Parks board to start privatizing parks.

In total, the GOP budget shaves more than $1.3 billion in state spending—which is about a half-billion more than Gov. Jan Brewer proposed.

We already pend the smallest amount per student of any state in the nation - and our academic achievements show it - we are always in the bottom three states, along with Mississippi.

I can't imagine why any large company would relocate to AZ when all we can offer them are some tax breaks and an illiterate workforce. If it were my company, I'd want to be in a state that has quality education - that supports education rather than giving tax breaks to the wealthy.

That all happened last week - but after the Weekly went to press, the Arizona Daily Star reported on the real Holy Grail of this legislature, a proposed flat income tax. Under this tax scheme, those making more than $100K pay LESS taxes, while lose making under $100K pay more taxes - the rich get richer and the poor and middle class get poorer - and in order to make this work they are also eliminating ALL deductions, including interest on mortgages and charitable contribution deductions.

A Senate panel approved the bill on Thursday on a partisan vote:

A Senate panel voted Thursday for a major revision in the state tax code that would mean lower bills for about 13 percent of Arizonans - and higher ones, on average, for everyone else.

The legislation, approved on a 4-2 party-line vote with Republicans in the majority, would replace the state's graduated income tax structure with a single flat rate.

Preliminary estimates put that new figure at 2.13 percent. And that is lower than any of the current rates, which range from about 2.5 percent to 4.5 percent.

But to bring in the same amount of money as the current system, the plan would eliminate all deductions. That includes some big ones, like interest paid on home mortgages and charitable contributions.

And the exemptions from income that now exist for each person living in the home also disappear.

Rep. Steve Court, R-Mesa, who already has shepherded the proposal through the House, said the idea is fairness.

"This changes the way we look at how we tax income," he said. "It also simplifies the process."

Court said the idea of eliminating all those exemptions and deductions make sense "so that the government does not incentive how you spend your money and you don't have a situation where a group of you all making $24,000 a year would all pay a different tax."

But what Court called a "fair process" drew the ire of Sen. Paula Aboud, D-Tucson.

She pointed out the net effect is going to be a tax shift from those at the top of the income scale to those lower down. Figures crafted by the Joint Legislative Budget Committee conclude the break point is around the $100,000 range, with everyone below that paying something more than they do now.

He predicted that the average tax bill for those below $100,000 will be going up $200 a year. "It's not going to be any excessive tax increase," Court said.

Aboud bristled at that conclusion.

"Two hundred dollars to some people is a decider between food, medicine and a whole lot of things in these hard economic times," she said.

"This feels insulting for the people that are struggling, when they're losing their health care and they've lost their job and they're losing their home," Aboud continued. "There are a lot of people that are suffering, and this bill heaps that onto them."

Here is a chart of the estimated tax burden by income

You can view the PDF in full size.

Notice that those earning less than 10,000 a year will pay 19,900% more taxes than they pay now. WTF? Blood from turnips much?

My bracket (at least while I am student) will get hit with a 77% increase, and I can't deduct interest on student loans anymore.

I'm hoping that this will not make it through the state house - although here, like at the national level, the Senate tends to be a little more sane. That scares the hell out of me.

Like all dumbass things this state does, if it passes here, look for it to come to your state next.


Anonymous said...

Think of it this way, wealth is building up in a big, expanding balloon. Eventually the balloon will burst and all that glorious wealth will not just trickle down, but come splashing down on all of us poor and downtrodden. If you can just hold onto that vision, it might help during the long and painful waiting period. And meanwhile, if you can get yourself into the early stages of some clever pyramid scheme, or something along the lines of a ponzi scheme, you know, like credit default swaps, you might be able to break out of serfdom, and into the green ahead of the masses. Imagine how wonderful it will be to look down at all the ordinary people and feel an exaggerated sense of self worth.

Kabir said...

Beautiful sentiment: “the stupid, it hurts!”

I thought it would be worthwhile to run the numbers from the before and after picture provided by the useful chart.

In a total income generated tax revenue of roughly $2.35 billion, the flat tax will reduce the overall tax burden by slightly more than $3.5 million.

The most significant change of moving the flat tax will simply be to move nearly $400 million of the tax burden from those earning over $100,000, to squarely on the shoulders of those earning under $100,000.

The Stupid. It's Hurts!

william harryman said...

that $3.5 million difference is made up in the elimination of ALL deductions, again shifting burden to the poor

yes, the plan makes all people pay the same rate, but 2.13% is a lot for someone at $20k, but very little for someone making $2 million.

Fair? Not so much.