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State Income Tax Projects Are Down Significantly; Should Lawmakers Be Worried?

Members of the Missouri House of Representatives mingle on Wednesday, Jan. 4, 2023, before the start of the legislative session at the Missouri State Capitol in Jefferson City.

For the first time since March 2020, when COVID-19 started impacting the economy, the non-partisan Joint Legislative Budget Committee (JLBC) is reporting a dramatic decline in income tax collections. 

“The figures were down last month, $183 million has to be taken into perspective,” State Senator John Kavanagh said. Kavanagh is the chairman of the Senate Appropriations Committee. “It’s only 1% of our total revenue. this is a blip in a subjective forecast. The projection could be way off.”

This is the first year of Arizona’s 2.5% flat tax. Revenues were expected to decline, but according to the JLBC, the 44% reduction in May far exceeded projections. 

State Representative Athena Salman, the ranking Democrat on the House Appropriations Committee believes the decline in income tax revenue could be a harbinger of things to come. 

“This is a manufactured crisis by the Republicans who have historically controlled this state and have just cut taxes, cut taxes with no plan and no effort to ensure we actually have a sustainable long-term revenue stream,” Salman said.

One of Salman’s concerns, and it’s shared by Governor Katie Hobbs, is the escalating cost of empowerment scholarships which the Arizona Department of Education predicts will cost taxpayers $900 million, nearly twice what is allocated in the 2024 state budget. 

“I would blame the Republicans who wouldn’t put ESAs on the table and they’re set to bankrupt the state. We’ve had this conversation multiple times and I think we need to put it back on them,” Governor Hobbs said.

Senator Kavanagh believes when it is all said and done, the money will be there. Kavanagh says it’s things like the flat tax and deregulation which are bringing industry and jobs to Arizona. “The people who oppose school vouchers, the people who oppose the flat tax are going to jump on this one month, possible aberration, and say the sky is falling,” said Kavanagh.

But if the Governor and Democrats are right, Kavanagh says the state can dip into Arizona’s $1.4 billion rainy day fund to cover whatever deficit may arise.