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State Lawmakers Seek a Change in Tax Brackets to Counter Inflation

State lawmakers are one step away from working to keep taxpayers from being penalized because of inflation. Arizona Public Radio’s Howard Fischer explains.

Right now state income tax rates are based on brackets. For example, earnings of less than $50,000 a year are taxed at a lower rate than those above that. Rep. Justin Olson said that can be unfair to someone who gets a pay hike.

“When the value of the dollar declines as a result of inflation, that bumps your earnings into a higher tax rate bracket. This bill will do away with that. And the same purchasing power this year will have the same tax rate next year.”

The legislation given preliminary Senate approval Monday requires the brackets to be altered next year by the rate of inflation. So, if inflation is 2 percent, that $50,000 break point between the rates would become $51,000. The difference to an individual taxpayer right at that line might be perhaps only a dollar. But, the overall difference in lost revenue to the state could be anywhere from $5–10 million. Olson is unapologetic.

“If we are going to make a conscious decision to apply a higher rate to a given amount of earnings, then we ought to do that by a conscious vote of the Legislature. We shouldn’t just automatically apply a higher rate to the same earnings just because of inflation.”

With the House already having approved the measure, the big hurdle could be convincing Gov. Jan Brewer who vetoed a similar bill last year.

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