PHOENIX — An organization dedicated to limiting the size of government is asking the Arizona Supreme Court to prevent voters from getting the last word in November on a $1.9 billion state tax cut.
Lawyer Kory Langhofer, representing the Arizona Free Enterprise Club, told the justices Tuesday that the power of the public to refer to the ballot any measure approved by the Legislature does not extend to actions related to the “support and maintenance’’ of the state. He argued that, by definition, any change in tax law fits that definition.
Attorney Andy Gaona, representing Invest in Arizona, the group that collected the signatures to force a public vote, agreed that voters cannot use the referendum process — which puts a legislative act on hold until the next election — to hold up the functioning of government.
But Gaona pointed out that the issue here was not a new tax, where the revenues are needed to keep the state operating.
Instead, he said, the issue is the desire of the Republican-controlled Legislature to forego revenues that otherwise would flow into state coffers. Holding them up to give the public a chance to review them, Gaona said, would not affect the ability of state agencies to do their jobs.
The tax cut plan was approved last year in Senate Bill 1828 on a party-line vote and signed by Republican Gov. Doug Ducey. As structured, it would give far greater benefits to those at the top of the income scale.
Foes gathered more than the 118,823 valid signatures needed to hold up enactment until voters get the last word. They said their issue with the tax-cut plan is that the state would see a $1.5 billion loss in revenues by 2025 when it is fully phased in, which could hurt funding for education and other programs. and other programs.
Maricopa County Superior Court Judge Katherine Cooper last year slapped down the bid by the Free Enterprise Club to declare the issue exempt from the constitutional right of referendum.
Cooper agreed with Langhofer there is an exception for “appropriation bills.’’ She said those are measures that set aside public funds for a specific government purpose.
But she said that ‘s not what is in SB 1828.
“It adjusts Arizona’s income tax rates, lowering them over time to a ‘flat tax,’ ‘’ the judge said.
“It does not set aside any tax revenue of a certain sum for any specified purpose nor does it dictate how agencies use that revenue,’’ Cooper continued. “SB 1828 does not fall under the well-recognized definition of ‘appropriation.’ ‘’
On Tuesday, Langhofer told the justices that’s too narrow a reading of what the Arizona Constitution does and does not allow.
If nothing else, he said it would be an oversimplification to say the tax cut in SB 1828 would not increase revenues, and support state government operations, albeit over the long term.
“There are so many variables in the question of whether a change in the tax code will increase or decrease revenue over time,’’ he said. “What industries may flourish? We don’t know the answer to those questions.’’
He said that analysis need not be limited to what might happen due to SB 1828 in, say, the next two years. “It could be 100 years,’’ he said. “Why wouldn’t that be relevant?’’
What is clear, though — and the fact the justices have in front of them now — is that the measure is designed to cut taxes immediately. It does that by altering the tax code.
Under current law, anyone with taxable income up to $26,500 a year pays a tax rate of 2.59%, with those figures doubled for married couples filing jointly. That rate increases in steps, to the point where taxable earnings on individuals above $159,000 are taxed at 4.5%.
SB 1828 would impose a single 2.5% tax rate on all incomes beginning in 2025. Legislative budget staffers peg the state revenue loss at $1.9 billion a year.
Ducey has portrayed the measure as providing a tax cut of about $300 a year for the “average Arizonan.’’
But an analysis of the package by legislative budget staffers puts the annual savings for someone making between $25,000 and $30,000 a year at $11. That increases to $96 for those in the $50,000 to $75,000 taxable income range.
Bigger benefits kick in at higher income levels.
Taxpayers with income of between $250,000 and $500,000 would see an average $3,071 reduction in what they owe each year according to the staff analysis. That increases to more than $7,300 annually for those earning from $500,000 to $1 million.
Gaona told the justices the framers of the Arizona Constitution provided a “fundamental right’’ of voters to have the last word on legislative actions, with only a handful of exceptions.
“We should interpret that right in favor of the people, and people having the maximum possible legislative power,’’ he said. He told the justices that is consistent with their prior rulings about the ultimate power to legislate belonging to the people.
Langhofer, however, said denying people the right to have the last word on this kind of tax cut does not leave them powerless if lawmakers approve “improvident laws.’’
“The solution is no more than two years away,’’ he said. “You can vote them all out and start over. Everyone’s up for reelection, everyone has to answer for their acts.’’
If the justices don’t buy Langhofer’s legal arguments, that won’t end the Free Enterprise Club’s attempt to quash what is currently slated to be on the November ballot as Proposition 307.
Langhofer contends some of the paid circulators who gathered signatures did not register with the secretary of state as required, or that they collected signatures before registering. There also are claims that some of the registration forms are missing required information like providing a full address.
All this is occurring against the backdrop of efforts by some Republican lawmakers to repeal the 2021 law outright and replace it with something else, perhaps an even faster move to the 2.5% flat tax rate than by 2025. If successful, that would have the effect of nullifying the entire petition drive.
The justices gave no indication when they will rule.
