Opinion: For individuals, simplicity was the chief benefit of the Trump tax reform. Lawmakers also made that the chief benefit of the state's conformity law.


The Trump tax reform presented an issue for Arizona.

Arizona customarily conforms to changes made in federal income tax laws for simplicity. In this case, however, so doing would produce a windfall for the state. That’s because the Trump tax reform limited some deductions, which would increase state tax collections.

So, the issue was whether to pocket the windfall or offset it in some way? And if the latter, in what way?

Neither the left nor right liked the plan

The way the state dealt with it has generated grumbles left and right. But, in reality, the right thing was done, the right way.

The left wanted the state to pocket the windfall to support state programs. I’ve long advocated an increase in consumption taxes, particularly for K-12 education. But an income tax increase is a drag on economic activity. And it shouldn’t be done by stealth, as an incidence of conformity.

As it turned out, the state did pocket the windfall for tax year 2018, thanks to dilatory tactics by Gov. Doug Ducey, who also wanted to pocket the money. But, going forward, the Legislature passed offsets to give the windfall back to taxpayers.

Many on the right thought that the money should go back, as closely as possible, to those hit by the increases caused by conformity, mostly higher-income households who itemize. The Legislature passed a bill so doing largely by reducing tax rates, with application to tax year 2018. But Ducey vetoed it.

The bill that was passed, and Ducey signed, takes a different approach.

Why it's smart to put simplicity first

The Trump tax reform was mostly about a significant cut in the corporate income tax rate. On the individual side, the principal provision was a substantial increase in the standard deduction, seeking to reduce the number of people who itemize.

There was little in the way of a rate reduction. And it was understood that some higher-income taxpayers, particularly in high-tax states, would end up paying more due to the limitations on deductions.

The conformity legislation the Legislature enacted follows this approach. The standard deduction is substantially increased, mirroring that in the Trump tax reform. The rate reductions are minuscule. Many higher-income taxpayers who itemize will still pay more to the state.

Sen. J.D. Mesnard, who helped lead the legislative effort to not make conformity a revenue-raiser for the state, voted against the bill for that reason. And some conservative groups, while happy that the offsets were enacted, were discontented with the ultimate approach.

But that underappreciates the virtue of simplicity in taxation. Substantially reducing the number of people who itemize is a good thing in and of itself.

And while the rate reductions were minuscule, they were made. The state’s income tax code is a tad flatter, with a nudge toward lower marginal rates.

Increased simplicity was the chief benefit of the Trump tax reform with respect to the individual code. It was appropriate to make that the chief benefit of Arizona’s move to conform as well.

Reach Robb at robert.robb@arizonarepublic.com.

Read or Share this story: https://www.azcentral.com/story/opinion/op-ed/robertrobb/2019/06/04/arizona-legislature-made-taxes-simpler-right-move-tax-conformity/1333343001/