OUR GOP LEGE STABS US IN THE BACK

Yes, Arizona may have a flat state income tax and while that will be great for those in the highest income bracket, many others less well off will pay more.

Flat-tax plan could hit wallets
By Howard Fischer
Capitol Media Services
Tucson, Arizona Published: 06.29.2009

PHOENIX — A flat-tax plan touted by backers as hurting no one actually could result in higher taxes for many Arizonans.

And it does that, at least in some cases, by taxing the same money twice.
HB 2653 would impose a 2.8 percent state income tax. That would replace the current graduated system that has rates ranging from less than 2.6 percent to more than 4.5 percent.

The flat-tax legislation, which would take effect in 2012, would scrap existing laws that use an individual's federal adjusted gross income as the starting point for computing state income. Instead, it uses the total gross income as a base.
The difference? A lot.

For example, contributions made by individuals to qualified retirement plans, such as 401(k) plans and individual retirement accounts, are subtracted before computing taxable income. That is based on the idea that these contributions should be tax-deferred.

If HB 2653 becomes law, that deferral would disappear.

What that means is that Arizonans would pay tax when they earn the money in the first place — and be taxed again when they withdraw the funds.

Along the same lines, some people who are divorced also will get hit in an unusual way.

Right now, whoever has to pay alimony gets to deduct that amount from taxable income. That is based on the premise that the former spouse getting the checks is paying income tax on it.

But the way HB 2653 is worded, the person paying the alimony will now have to pay tax on it — as well as the other one receiving it.

It also has a particular hit on those who are self-employed.

These people pay both the employer and the employee halfs of federal Social Security taxes. But to make up for that, the individuals get to deduct that other half from their federal taxable income.

HB 2653 would make that subject to state taxes.

Similarly, the deduction that now exists for the health-insurance costs of a self-employed person also would disappear.

Also subject to Arizona income tax would be contributions to health savings accounts and money students now pay for tuition and fees, as well as the interest paid on student loans.