Last week, Republican lawmakers in Arizona voted to cut income tax rates for corporations by almost half. This move could eventually cut state revenues by nearly $670 million a year and take away just over $5 million in revenue from Scottsdale. However, the move was met with opposition from Democrats on the panel who questioned the wisdom and need for the tax rate to be lowered from its current 4.9% to 2.5% by 2026. This follows a series of cuts a decade ago that lowered the rate from nearly 7%.

House Minority Leader Andres Cano said, “There are better places we can invest more than half a billion dollars than on corporate welfare.” He suggested investing the money in teachers’ salaries, housing relief for renters and homeowners, and other important areas.

However, Rep. David Livingston, R-Peoria, the author of the bill, pointed out that even legislative budget staffers admit the estimates of lost revenues are “highly speculative.” He explained that corporations have great flexibility in how and when they compute and pay their taxes, leading to volatility over the years. In 2013, when the corporate rate was close to 7%, collections were $662 million. They hit $368 million when the rate reached 4.9% but rose to $847 million by 2021, even at the lower rate.

Rep. Livingston also argued that the bill is a matter of equity. The 4.9% rate applies to “C-corps,” which are corporations that are directly taxed, as are the distributions to shareholders. However, “S-corps” pay no corporate taxes, with the profits or losses passed on to individual shareholders who report them on their personal returns. And the individual tax rate in Arizona is 2.5%. But not every company can organize that way, with federal law limiting them to companies with 100 or fewer shareholders, all of whom have to be U.S. citizens or residents.

David Lujan, CEO of the Children’s Action Alliance, questioned the need for further corporate tax relief. He cited figures from the state Department of Revenue that 79% of corporations pay only the $50 a year minimum state tax. That’s because many are able to reduce their reported profits because of various tax credits the state makes available, credits these companies can bank for up to 12 years if they had no tax liability. In fact, Lujan said, those corporations currently have more than $1 billion in “banked” credits that they will be able to use in future years if they ever do have taxable income.

“We think a better economic strategy would be to focus on investing in our workforce,” he told lawmakers. Lujan said many factors go into why companies move choose to locate or expand. And he said one of the biggest factors is not the tax rate but the ability to find qualified workers. “This bill we believe will make it even more difficult to invest in strengthening our workforce,” Lujan said. “It’ll make it more difficult to invest in higher education and job training and K-12 education.”

Rep. Seth Blattman, D-Mesa, said this is about more than just lost revenue for the state. He pointed out that cities and towns receive 18% of individual and corporate income tax collections, computed from what was paid two years prior. And legislative budget staffers figure that by 2029 the combined loss to local communities will exceed $120 million.

However, Rep. Justin Heap, R-Mesa, said he was “skeptical” that cities actually will end up losing revenues. “The cities that I have talked to in Arizona are competing to try to get these tech jobs,” he said, the kind of jobs he believes a lower corporate tax rate would attract.