Arizona Republican lawmakers eye tax cut changes to avoid referendum

Dec 31, 2021, 5:00 PM

PHOENIX (AP) — Arizona Republican lawmakers who pushed through a nearly $2 billion income tax cut in the last session are looking to repeal it and replace it with a new version, a move that would end a voter referendum that has stopped the tax cut law from taking effect.

The acknowledgment from Rep. Ben Toma and Sen. J.D. Mesnard, key architects of the flat tax proposal and bills that sidestep a tax on the wealthy that voters approved in 2020, comes a week after a judge rejected a challenge to the referendum.

And it’s not just the referendum itself, which has put the Republican-controlled Legislature’s $1.9 billion income tax cut on hold, that is the problem. Toma noted that getting his flat tax proposal enacted involved a series of agreements to get other Republicans on board.

That includes an increase in the amount of income taxes sent to cities from the current 15% to 18%, a deal that was designed to shield those governments from the state revenue cuts. Cities would get a big windfall if the tax cuts go away.

“This really was, in every sense, a budget conversation,” Toma said this week. “It was, as a matter of fact, the budget conversation. That was the one thing that needed to be solved in order to get a budget this past year.”

On the table is a potential full repeal and replacement of the tax cuts, which will be phased in when revenue targets are met, starting at $1.3 billion this year, Toma and Mesnard said.

When fully phased in, the plan would lower tax rates for most taxpayers to 2.5%, down from a range of 2.59% to 4.5% and cut state revenue by $1.9 billion. Wealthy taxpayers would also be spared from the tax hike approved by voters in 2020 to boost school funding.

The tax cuts mainly benefit the wealthy. The average Arizonan earning between $75,000 and $100,000 will save $231 a year in state income taxes, while the average taxpayer earning between $500,000 and $1 million a year will save more than $12,000, according to the Legislature’s budget analysts. And the bills creating big carve-outs to Proposition 208 save the wealthy hundreds of millions.

Groups that put Proposition 208 on the 2020 ballot to boost school funding were incensed with the tax cuts and the workarounds to the initiative’s 3.5% tax surcharge on high-earners.

The state Supreme Court in August found a key part of Proposition 208 unconstitutional and said its must be voided entirely if a trial court finds the new revenue puts schools over a voter-approved spending limit. That’s likely, since schools are already bumping up against that limit.

After the $12.8 state budget package was passed in June, they worked to collect enough signatures to block the tax cuts and the two bills gutting Proposition 208 revenue. They only managed to block the big income tax cuts.

Tax cut opponents contend underfunded Arizona schools and social programs need the cash more than the wealthy. They had to file more than 118,000 valid signatures to block the tax cut law and place it on the November 2022 ballot. The Secretary of State’s office said that after its reviews and county officials an estimated 163,000 were valid. It was certified in November and could be on the ballot as Proposition 307 in November 2022.

The group, Invest in Arizona Now, has so far fended off a court challenge to the referendum trying to repeal the tax cuts included in Senate Bill 1828. Last week a judge rejected arguments from the Arizona Free Enterprise Club that the state constitution does not allow tax cut laws to be referred to the ballot. That decision is being appealed to the state Supreme Court.

David Lujan, who leads the group Children’s Action Alliance that was part of the coalition backing the referendum, said voters will not be happy if the Legislature repeals and replaces the tax cuts and avoids the referendum.

“I would say I would proceed with extreme caution if I was any lawmaker that was inclined to support something like that, because polling shows that Arizona voters overwhelmingly support this referendum,” Lujan said Thursday.

Mesnard said the combination of the referendum blocking the income tax cuts and the Supreme Court ruling on Proposition 208 will require GOP lawmakers to act. No Democrats backed the tax cuts.

“So given those two factors, my suggestion would be to repeal it,” Mesnard said. “Take a look at the new landscape, post the court’s ruling, and pass a different tax package.”

State revenues continue to soar, with a huge surplus approaching $2 billion even if the $1.9 billion tax cuts go into effect, Toma said.

“A full repeal and replace of the tax cut is on the table,” Toma said. “Our revenues are considerably different in a good way than they were even when we passed this bill.

“And a more clean bill that reflects the reality of where we are, I think that’s also a potential option,” he said.

We want to hear from you.

Have a story idea or tip? Pass it along to the KTAR News team here.

Arizona News

Police are searching for information on a series of cars damaged with a "bias element involved."  (...

Series of crimes with ‘bias element’ leaves cars damaged in central Phoenix

Police are seeking information about vehicles damaged within the last week determined to have a "bias element involved" in central Phoenix.

9 minutes ago

Two defendants were sentenced to over 10 years in prison for shooting at Hopi police officers amid ...

Defendants who shot at Hopi officers during police chase sentenced

As they fled a traffic violation, two members of the Navajo Nation begun shooting at pursing Hopi officers during a car chase.

3 hours ago

YCSO arrested a suspect who allegedly stabbed both of their parents multiple times. (YCSO Facebook ...

Suspect arrested for allegedly stabbing parents multiple times south of Sedona

A suspect is in custody following the alleged stabbing of their parents in a small town south of Sedona on Saturday morning.

5 hours ago

New Mexico officials issued mandatory evacuations this week for heavy rain and flash flooding. (Pex...

Associated Press

New Mexico heavy rain and flash flooding prompt mandatory evacuations

Heavy rain in New Mexico prompted officials to order some mandatory evacuations, with shelters set up for displaced residents.

6 hours ago

Split image with a sign reading Chandler City Council at the outside the East Valley suburb's city ...

Chandler’s unruly gathering, brass knuckles laws to go in effect Monday

People under 18 years of age will be prohibited from possessing and purchasing brass knuckles starting Monday.

7 hours ago


Former Tucson resident sentenced to prison for defrauding refugees

A Tucson woman defrauded her victims, stole their identities and opened numerous credit card accounts, making thousands of dollars.

9 hours ago

Sponsored Articles


Sanderson Ford

3 new rides for 3 new road trips in Arizona

It's time for the Sanderson Ford Memorial Day sale with the Mighty Fine 69 Anniversary, as Sanderson Ford turned 69 years old in May.



Desert Institute for Spine Care is the place for weekend warriors to fix their back pain

Spring has sprung and nothing is better than March in Arizona. The temperatures are perfect and with the beautiful weather, Arizona has become a hotbed for hikers, runners, golfers, pickleball players and all types of weekend warriors.



Here are 5 things Arizona residents need to know about their HVAC system

It's warming back up in the Valley, which means it's time to think about your air conditioning system's preparedness for summer.

Arizona Republican lawmakers eye tax cut changes to avoid referendum