January 20, 2006

Arizona: Napolitano Puts the Brakes on Tax Cuts

Continuing our survey of gubernatorial tax proposals:

In the context of recent proposals by Arizona Republican legislative leaders to enact large, permanent income tax cuts, the tax ideas in Governor Janet Napolitano's State of the State address seem relatively tame. She's been careful to contrast her limited, targeted approach to tax cuts to the "across the board" income and corporate rate reductions trotted out by the GOP. But there's some interesting stuff here.

The cleverest idea she trots out is a restructuring of the state's annual car tax to provide tax breaks for fuel-efficient cars. The speaker of the House says it's a regressive idea:
House Speaker Jim Weiers called it both anti-family and anti-poor. "A lot of times when you've got the larger families they have the bigger cars, which means that they get the worst gas mileage," he said. The poor, who can't afford newer, more fuel-efficient vehicles, would get no relief, he said.
I'm not sure I buy this argument-- I haven't seen studies that try to show how fuel-efficiency varies with income levels--but if Arizona lawmakers are that concerned with "anti-poor" tax provisions, they could start by looking at the gross inequities in the sales-tax heavy system that already exists.

The other interesting idea she's got is a tax credit for small employers who provide health insurance to their employees. Details are vague at this point, but the general idea is that companies with between 2 and 24 employees can get a $1,000 tax credit. No word on whether that's per-employee-covered or what-- and no word on whether the credit is available to companies who are already covering their employees (in which case it's a reward for something they're already doing). But this is worth keeping an eye on, not least because it's the leading edge of an interesting trend where states using tax carrots (or, as folks are debating in Maryland and Massachusetts right now, sticks) to encourage companies to do the right thing with health care coverage. We'll report more on this trend in the near future.


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