PHOENIX β The group that won voter approval for Proposition 208 is now gearing up to force a public vote on Gov. Doug Duceyβs plan to enact the largest tax cut in Arizona history.
Talks are underway to collect signatures to force a referendum on what is now shaping up to be a $1.9 billion permanent cut in state revenues, said David Lujan, director of the Arizona Center for Economic Progress.
He acknowledged there is probably some public support for the package being worked out by Ducey and his fellow Republicans in legislative leadership, as it is designed to ensure that everyone would get some sort of tax break.
But new figures obtained Wednesday from the Legislatureβs own budget analysts show that the top 1% of Arizona taxpayers would see a break of more than 40% over what they would otherwise have to pay.
By contrast, the other 99% β meaning everyone with taxable income of less than $500,000 β would be in line for a 19.7% reduction.
The figures are more pronounced when looking at those who earn $50,000 or less, who make up more than 57% of all Arizona taxpayers.
Their average tax cut would be 4.8%.
βWhen people hear the overwhelming majority of these tax cuts are going to the richest 1%, and then on top of that they hear this is going to be a huge cut to citiesβ and townsβ revenues and the services they depend on ... weβve seen polling that changes the whole dynamic,ββ Lujan said. βAnd they are very much opposed to that type of a deal.ββ
Tough to get on ballot
Getting the measure on the 2022 ballot would be no easy feat. Backers would need 178,234 valid signatures on petitions.
And they would be working against the clock: Any referendum has to be submitted within 90 days of when the legislative session ends. But Lujan said the signature requirement is not insurmountable, even with the tight timeline.
βIn 2018, our first time trying to do Invest in Ed, we got substantially more signatures than what was being required in this instance,ββ he said. βAnd we did it in about the same amount of time, in about 90 days.ββ
He was referring to Proposition 208, approved by Arizona voters in November, that says couples making $500,000-plus should pay a 3.5% surcharge on their incomes above that figure to help pay for public education.
The proposition didnβt make the ballot in 2018 after the Arizona Supreme Court said some of its wording could be confusing or unfair. With new wording, the backers made the 2020 ballot. And Lujan said that was done despite the difficulties of gathering signatures during the pandemic and its travel restrictions.
Legislative huddles
What will happen with the tax cut plan β and the entire state budget β remained unclear late Wednesday.
Republican legislative leaders were huddling with rank-and-file members in their effort to complete work this week on the new $12.8 billion spending plan.
But their efforts to corral the necessary 31 votes in the House and 16 in the Senate are complicated by conflicting demands among GOP lawmakers.
For example, Sen. Michelle Ugenti-Rita, R-Scottsdale, has complained about what she considers βexcessive spendingββ in the package.
Conversely, Sen. Paul Boyer, R-Glendale, says more money is needed for priorities like universities. And he wants to be sure that any cut to state revenues does not harm cities that, under current law, get 15% of state income taxes.
The same scenario is playing out in the House, where Rep. Jake Hoffman, R-Queen Creek, announced he would not support this level of spending, even if combined with record tax cuts.
At the same time, Rep. David Cook, R-Globe, is questioning the size of the permanent tax cuts in the package. He said that, given the Arizona economy, a $500 million cut might make more sense.
Cook also is uncomfortable with a provision in the plan that would relieve the richest taxpayers of at least some of their voter-imposed obligation to pay more to support public education.
Tax details
All that has to do with how the package is constructed.
It would create a single 2.5% tax rate. That compares with current tax brackets that start at 2.59% on earnings up to $53,000 a year for a married couple and top off a 4.5% on amounts above $318,000.
But the big break would be for couples in the $500,000-plus category, those whom Proposition 208 said should pay the 3.5% surcharge.
The package, however, limits total taxes paid by anyone to 4.5%. And with no ability of lawmakers to rescind the voter-approved surcharge, that effectively means people in this tax category would pay just 1% on their other income.
All this shows up in the new analysis by the legislative budget staffers.
For example, they estimate there are 18,400 taxpayers in the $500,000 to $1 million earnings category.
Before Proposition 208, they paid an average of $25,694 a year in income taxes. The ballot measure boosted that to $30,521.
But the relief package being pushed by Ducey and legislative leaders would reduce that to $18,387, 40% less than they otherwise would have to pay.
There are similar figures for those in the $1 million-plus tax categories.
By contrast, legislative budget staffers looked at the returns of close to 345,000 taxpayers whose income fell in the $30,000 to $40,000 range. They pay no more due to Proposition 208.
Under the Republican plan, their average income tax would go from $447 to $430, or a decline of about 4%.
Lujan said it is numbers like that he believes will convince voters to, at the very least, demand a say on the package.
Under constitutional rules, if backers get the signatures, the tax reductions would remain in limbo until the November 2022 election. At that point, the legislative package would go on the ballot, needing a βyesβ vote.
The mere possibility of a referendum creates an interesting political situation for Republican legislators. It would mean they would be on the ballot for reelection β or, in some cases, election for higher office β at the same time voters were going to the polls to decide whether they like a package that offers its greatest tax cuts to the most wealthy.
