Saying it will stimulate the economy, the Republican-controlled Legislature voted late Thursday for a package of tax cuts and credits.
Approval of HB 2815 came as lawmakers finally wrapped up the 2012 legislative session after 8 p.m. that began at noon on Jan. 9. Lawmakers also took last-minute action on a number of leftover items including:
- Sending a massive plan to eliminate merit system protections for state employees to Gov. Jan Brewer.
- Establishing a community service commendation from the governor available to students who perform 200 hours of community service.
- Allowing cities to keep some of the revenues of sales taxes paid on construction projects for major new manufacturing facilities.
But it was the sweeping nature of the tax cut package that generated the most debate.
One of the major issues of contention is a provision which will reduce the tax rate for what individuals have to pay on capital gains. The phase-in over three steps through 2016, eventually would mean a rate 25 percent below what it is now.
With the top individual state income tax rate of 4.54 percent, that means by 2019 investors in that category will be taxed on their investment returns at just a hair over 3.4 percent.
Sen. Steve Yarbrough, R-Chandler, acknowledged that the possible loss of income from that change alone eventually could be $50 million a year. But Yarbrough said he doubts that would really happen.
"Many of us believe you would have more dollars because of the application of those funds by the person who would not be paying the capital gains tax to the government,'' he said. Put more simply, if people who have money to make investments have more cash, Yarbrough believes they will put that into investments that will create more jobs, employ more people and result in more people able to pay taxes.
Sen. Paula Aboud, D-Tucson, disagreed.
"My experience with capital gains is those dollars are purely for investment,'' she said.
"They're not really for job creation,'' Aboud continued. "They're merely for an investor to invest their money in a capital way to get further investments.''
More to the point, Aboud said those investments are usually in things like stocks, real estate and annuities.
"Rarely are they invested in the human capital to where it would provide any income back to the state,'' she said.
Yarbrough said even if people do not believe a capital gains tax cut spurs investment, lowering the rate is only fair.
"You are dealing with property that has already been taxed when you earned it,'' he said. A capital gains tax, Yarbrough argued, is a new levy when people invest that money they already earned -- and already paid taxes on.
Sen. Steve Gallardo, D-Phoenix, pointed to another provision which provides a one-time bonus depreciation allowance for new equipment. That allows companies to write off the cost of what they buy quicker, which in turn lowers their property taxes.
Gallardo said that change alone will cost the state $4.2 million.
There also is an increase in the amount of business equipment that is exempt from property taxes, from about $67,000 a year to more than $120,000.
And businesses will be able to carry forward their net operating losses -- and use them to offset future taxable profits -- for up to 20 years. That is four times longer than currently allowed.
Sen. Linda Lopez, D-Tucson, cited figures by legislative budget analysts which put the total loss to the state treasury by 2019 at nearly $108 million.
She pointed out that Democrats earlier this week tried to alter the Republican-crafted budget plan to restore funding for various programs.
One of those was $7 million which, coupled with other funds, would have helped restore the Kids Care program to the number of children who got health care to where it was before enrollment was frozen two years ago in a budget move. Other Democratic amendments rejected included increasing payments to health care providers and those who serve the developmentally disabled and providing child care for the working poor.
"All of these amendments would have created jobs at far less fiscal impact to the state of Arizona,'' Lopez said.
Not all of the opposition came from Democrats.
Sen Linda Gray, R-Glendale, pointed out that her GOP colleagues rebuffed her request to add $4.7 million to the budget for programs for the developmentally disabled. Yet the legislation also expands some tax credits for capital investments, including one that will give companies that build new manufacturing facilities a dollar-for-dollar state income tax credit of up to $200,000 for each job they create.
"When those in power won't provide the $4.7 (million) for the developmental disabilities and yet we give the tax credit back on this, how do I justify for those children when we do this?'' she asked.
"It just seems not right,'' Gray continued. "What we've done to the disability community doesn't seem right.''
The objections from Sen. Ron Gould, R-Lake Havasu City, were on different grounds. He said that key provisions were added to the measure only minutes before lawmakers were asked to approve the measure.
"How on earth am I expected to read a bill on the final day on the legislative session that's approximately 80 pages and understand it in the amount of time I've been allotted to do this,'' he complained.
"This is ridiculous,'' he continued. "This is how bad things happen.''