PHOENIX — The groups that organized Proposition 208 are now gearing up to force a public vote on what would be the largest tax cut in Arizona history.
David Lujan, director of the Arizona Center for Economic Progress, said talks already 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.
He acknowledged there is probably some sentiment out there for the package as it is designed to ensure that everyone would get some sort of tax break.
But new figures obtained Wednesday by Capitol Media Services from the legislature’s budget analysts show that the top 1% of Arizona taxpayers will see a break of more than 40% over what they would otherwise have to pay. By contrast, the other 99% — meaning everyone with taxable income of less than $500,000 — would be in line for a 19.7% reduction.
The figures are more pronounced when looking at those who earn $50,000 or less. That happens to make up more than 57% of all Arizona taxpayers.
Their average tax cut: just 4.8%.
“When 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 cities and towns revenues and the services they depend on ... we’ve seen polling that changes the whole dynamic,” he said. “And they are very much opposed to that type of a deal.”
Getting the measure on the 2022 ballot is no easy feat. Backers would need 178,234 valid signatures on petitions.
They would be working against the clock: Any referendum has to be submitted within 90 days of when the session finally ends. But Lujan said the signature requirement is not insurmountable, even with the tight timeline.
“In 2018, our first time trying to do Invest in Ed, we got substantially more signatures than what was being required in this instance,” he said. “And we did it in about the same amount of time, in about 90 days.”
The measure didn’t make the ballot that year after the Arizona Supreme Court said some of the wording in the description of the effect of the tax surcharge “creates a significant danger of confusion or unfairness.”
With new wording, the backers made the 2020 ballot. And Lujan said that was done despite the difficulties of gathering signatures during the COVID-19 outbreak and restrictions on travel.
What will happen with the tax cut plan — and the entire budget — 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 is complicated by conflicting demands among GOP lawmakers.
For example, Sen. Michelle Ugenti-Rita, R-Scottsdale, already has complained about what she considers “excessive spending” in the package.
Yet 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 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.
All that has to do with how the package is constructed.
It starts with creating a single 2.5% tax rate. That compares with 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 real big break is for couples in the $500,000-plus category. These are the people who Proposition 208, approved in November, said should pay a 3.5% surcharge on their incomes above that figure.
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 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 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 Gov. Doug Ducey and GOP legislative leaders reduces 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 goes 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 remain in limbo until the November 2022 election. At that point, it would go on the ballot, needing a “yes” vote to affirm the legislative package.
Just the possibility of a referendum creates an interesting political situation for Republicans. It would mean they would be on the ballot for re-election — or, in some cases, election for higher office — at the same time voters are going to the polls to decide whether they like a package that offers its greatest tax cuts to the most wealthy.