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

Phoenix Fire...

Colton Krolak

Phoenix Fire Department breaks ground on state-of-the-art fire station in West Valley

The Phoenix Fire Department broke ground on a new fire station near 91st Avenue and Lower Buckeye Road in the West Valley.

1 hour ago

Men entering seminary can spend two years at Nazareth House, which was established by the Diocese o...

Kevin Stone

Roman Catholic Diocese of Phoenix to create its first full seminary for future priests

The Roman Catholic Diocese of Phoenix announced plans Tuesday to create its first full seminary to educate and train future priests locally.

1 hour ago

Mike Broomhead...

Mike Broomhead

Amazing Arizonans: World Champion bull rider Cody Custer discusses rodeo career

On this episode of Amazing Arizonans, Mike Broomhead sits down with 1992 World Champion bull rider Cody Custer.

1 hour ago

a model room showing what the new community looks like...

Eco-conscious, luxury rental community opens in east Mesa

An eco-conscious detached rental community recently opened in east Mesa at Ellsworth Road and University Drive.

2 hours ago

woman cutting a sandwich in the back of house...

Eligible Mesa small business owners can register for low-cost college courses

A new program in Mesa is expanding ways that small business owners can earn college credits. 

10 hours ago

(Photo by Mario Tama/Getty Images)...

Associated Press

Judge denies Phoenix request to extend clean up time at The Zone

A judge on Tuesday denied the city of Phoenix’s legal request seeking extra time to clean up the city’s largest homeless encampment.

13 hours ago

Sponsored Articles



Key dates for Arizona sports fans to look forward to this fall

Fall brings new beginnings in different ways for Arizona’s professional sports teams like the Cardinals and Coyotes.



Here are the biggest tips to keep your AC bill low this summer

PHOENIX — In Arizona during the summer, having a working air conditioning unit is not just a pleasure, but a necessity. No one wants to walk from their sweltering car just to continue to be hot in their home. As the triple digits hit around the Valley and are here to stay, your AC bill […]


OCD & Anxiety Treatment Center

5 mental health myths you didn’t know were made up

Helping individuals understand mental health diagnoses like obsessive compulsive spectrum disorder or generalized anxiety disorder isn’t always an easy undertaking. After all, our society tends to spread misconceptions about mental health like wildfire. This is why being mindful about how we talk about mental health is so important. We can either perpetuate misinformation about already […]

Arizona Republican lawmakers eye tax cut changes to avoid referendum