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Arizona flat tax would shower richest with cuts, new report shows. Here's what's in it for you

Wealthiest 1,000 Arizonans would avoid $350,000 in new taxes, get tax cut instead, according to independent analysis for Legislature.

PHOENIX — Arizona lawmakers are deciding whether to sign off on the biggest tax cut in state history.

Republican Gov. Doug Ducey says he's letting workers keep more of their hard-earned dollars.

But for most Arizona taxpayers, the cuts would be pocket change, according to an analysis Wednesday by the Joint Legislative Budget Committee, the Legislature's independent budget, and spending watchdog.

For wealthy taxpayers subject to the Prop 208 income tax surcharge, the flat tax would wipe out hundreds of thousands of dollars in potential payments.

We verified that every group of Arizona taxpayers would get a tax cut - some as little as two bucks  - under the flat tax being debated in behind-the-scenes negotiations over the new state budget.

Arizona cities are pushing back furiously against the $1.7 billion in cuts. They project deep losses in state shared revenue, which helps pay for basic services like public safety.

"We expect to lose $250 million," said Nick Ponder, legislative director for the League of Arizona Cities and Towns.

"The proposal hasn't been supported by any economist in the state." 

Here's what the flat tax would mean for your state tax bill.

Less Than $40 for Most Taxpayers

If you're among the almost 60% of taxpayers who earn $50,000 a year or less, your tax cut would range from $2 to $39.

If you're among the 15% of all earners in the $50,000-  to $75,000-a-year tax bracket, tax bills would be reduced by an average of $96.

Flat Tax Keeps Prop 208 Intact

The big cuts would kick in higher up the income ladder, where the Prop 208 tax surcharge comes into play.

Arizona voters approved the surcharge in a statewide vote last November. 

It would create a roughly $800 million revenue stream for K-12 schools by imposing a 3.5 percent tax surcharge on income above $250,000 for individuals or above $500,000 for couples. 

The surcharge hasn't been collected yet, while the Arizona Supreme Court decides on its legality. Ducey opposed Prop 208. 

The flat tax keeps the revenue stream intact by capping the income tax rate for high earners at 4.5 percent - the entire surcharge plus a 1% income tax rate.

$350,000 in New Payments Erased

The top 5% of earners -- bringing in $200,000 to $5 million a year - would get tax cuts averaging $3,000 to more than $7,000. 

They would be off the hook for tens of thousands of dollars in added Prop 208 surcharges under the current tax code.

The biggest winners would be the 1,019 wealthiest Arizonans -- the top 0.03% of all taxpayers who earn more than $5 million a year.

The Prop 208 tax surcharge would have jacked up their tax bill by an average of $350,000.

The governor's flat tax would transform that tax increase into a tax cut averaging $5,000.

See the full report

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