(The Center Square) – Arizona taxpayers will actually save more than the original estimate of $1.1 billion over the next three years if the Republican majority in the Legislature passes its tax plan, according to a think tank.
The amount goes up if the federal government’s SALT deduction standard is factored in, said Glenn Farley, the Common Sense Institute Arizona’s director of policy and research.
Last week, Arizona state Republicans unveiled their new tax plan, which they expect will save taxpayers $1.1 billion. Things included in the tax plan include no taxes on tips or overtime, income deductions and an increase to child tax credits.
But Farley told The Center Square that the amount is greater when the SALT deduction, already in effect in Arizona, is included. He said the deduction is the “subtraction of your federal income taxes for your state and local taxes paid in the prior year.”
Arizona adopted the federal SALT deduction in its state income tax system, which means a person is “getting a subtraction for state and local taxes paid on both federal taxes [and] state taxes,” Farley said.
The 2017 Tax Cuts and Jobs Act limited the SALT deduction to $10,000 per year, he said. The Arizona GOP tax plan follows the 2017 deduction.
Arizona’s state income tax system closely follows the federal income tax system, Farley said. “A simple, clean Arizona income tax system is a win for taxpayers [and] the state.”
The Republican tax plan aligns with the tax changes in the One Big Beautiful Bill, Farley explained.
The two biggest things that will save Arizonans the most in taxes are raising the standard deduction and expanding the $6,000 deduction for seniors, Farley stated.
If the Republican legislators’ tax plan takes effect, Arizona will need to figure out how to pay for it, Farley said. He explained Arizona can do this by increasing revenue growth or reducing expenditure growth.
Before starting at CSI Arizona in 2022, Farley spent eight years working for former Arizona Gov. Doug Ducey, a Republican, as a policy adviser and chief economist. While at Ducey’s office, Farley was part of a team that helped implement the changes made from Trump’s 2017 tax cuts.
He said the 2017 Tax Cuts and Jobs Act changed the federal adjusted gross income definition, which states use when “defining their state income tax system.”
The tax cuts included in the bill were federal-specific, Farley explained.
The things that mattered to the states were the “definitional changes,” which were the tax increases, the research director noted.
When Arizona implemented the federal tax changes between 2017 and 2019, the state needed to figure out what to do with the increased revenue, Farley explained.
”What we ultimately did was a series of tax reforms and tax cuts to simplify our income tax system and reduce the rates,” he said.
Farley added that these changes “laid the groundwork” for Arizona’s 2.5% flat tax rate, which passed in 2021.
Based on his experience working in the Ducey administration, Farley said savings from tax plans “tend to be conservative.”
”What I mean by that is if you’re estimating the cost of a tax cut or the savings or revenue increases from a tax increase, you tend to overestimate the cost and underestimate the savings,” he explained.
