With virtually no dissent, lawmakers approved changes in state tax law Thursday designed to keep money flowing at the same rate from worker paychecks into the state treasury.
The legislation almost immediately alters the formula that now determines each employee's withholding for state income taxes as a flat percentage of federal withholding.
That became necessary after a provision of the federal stimulus law took effect April 1, reducing federal taxes by up to $400 a year for individuals and $800 for couples. Employers were directed to lower each worker's federal withholding accordingly.
The problem is Arizona law sets the presumptive state withholding at 10 percent of the federal figure for those earning up to $15,000 and 19 percent for those making more. So the change in federal law automatically reduced what was being taken out for state income taxes even though nothing changed in Arizona tax law.
This new law, expected to be sent to Gov. Jan Brewer next week for her anticipated signature, boosts that effective May 1 to 11.5 percent and 21.9 percent respectively.
Without the change, the state would have taken in $73 million less between now and the end of the budget year.
That money would have to be paid ‑ eventually ‑ by the taxpayers, though not until they filed their tax returns in a future budget year. In the interim, though, the state would have had to make up that $73 million difference to meet the constitutional requirements for a balanced budget.
Sen. Jack Harper, R-Surprise, who voted against the bill, said he would have preferred to leave the law alone, a move that would give workers a bit more in their take-home pay.
"The whole reason why you cut taxes is so you can put more money in the hands of people to grow the economy,'' he said. Harper said this legislation does "just the opposite'' by ensuring that the money in question goes to the treasury.
Harper said he does realize the change is "revenue neutral'' and that the only question is whether workers pay the tax to the state in small pieces through each paycheck or in a lump sum at tax time.