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Arizona Republicans, governor seek flat tax rate


By Howard Fischer
Capitol Media Services
PHOENIX -- Key Republican lawmakers and Gov. Doug Ducey are moving to undermine the scheduled public vote on last year's $1.9 billion tax cut.
That's not officially the goal of a planned special legislative session. Instead, it is to replace that package with an even bigger tax cut and have whatever new tax plan is enacted take effect even sooner than previously planned.
The goal, however, is the same: A flat tax rate. And that means the most wealthy, by virtue of paying the highest taxes, would get the biggest relief.
But in order to enact a new plan, legislators would first need to repeal the 2021 measure.
That's the one that foes managed to collect to collect more than 215,000 signatures last year to hold up enactment until this November's election when voters would get to decide whether to ratify or reject the plan.
If lawmakers repeal that 2021 measure, however, there is nothing left to send to the ballot for voters to consider -- even if it is replaced with a similar proposal.
David Lujan, a key player in referring last year's measure to voters, said the whole reason for the plan to repeal the 2021 plan, kill the November vote and reenact a different once is "because lawmakers know these tax cuts are wildly unpopular with voters.''
Sen. Martin Quezada, D-Glendale, was more direct about the new GOP proposal and how it would undermine the referendum.
"This is basically a governmental middle finger to the voters of Arizona from Gov. Doug Ducey and the Arizona Republican Party,'' he said.
Gubernatorial press aide C.J. Karamargin said there's nothing sinister about the move, even if it would make the referendum drive go away.. He said it's just making the 2021 plan better.
"If you have an opportunity to improve it, why not seize that opportunity?'' he asked. And Karamargin said nothing precludes the same people who referred the prior plan to the ballot from once again going out and gathering the signatures to do so again.
"Why not wait and see what the result is?'' he said.
And Sen. J.D. Mesnard, R-Chandler, one of the architects of the plan being hammered out, said this isn't thwarting the will of those who signed the referendum petition to get a public vote on the 2021 plan.
"This isn't the exact same plan,'' he said.
"It's a faster version of the plan,'' Mesnard continued. "And I would like to make some changes as well.''
And Mesnard said there's a good reason to keep the original plan from going to voters.
The Arizona Constitution spells out that anything approved at the ballot cannot be repealed or altered by the legislature. Mesnard said that means that that even if voters were to side with the legislature and ratify the 2.5% flat tax, it would be "locked in stone'' and could not be changed except with a future ballot measure.
"So at that point, you have to reevaluate whether this is the right approach, the right package, the right timing,'' he said.
Lujan said, though, that lawmakers are wrong if they think they can keep the public from getting the final say word on such a massive change in the state's tax system. He said if lawmakers approve a new plan that could then send foes back to the streets to once again gather the signatures to force it to the ballot.
It wouldn't take much: Foes would have 90 days after the final enactment to gather 118,823 valid signatures on petitions.
Central to the debate are efforts by Republicans to enact a flat income tax plan.
Under current law, tax rates are based on income brackets starting out a 2.59% for individuals earning up to $26,500 a year and $53,000 for married couples filing jointly. There are several interim steps before the tables top of at 4.5% for individual income of more than $159,000, double that for married couples.
The 2021 plan -- the one on hold pending the November election -- would reduce all rates, in two steps, to 2.5% by 2025.
Two things have changed since the original vote.
First, the original plan was built on the decision by GOP lawmakers to protect the wealthiest Arizonans from the full effects of Proposition 208.
That would have provided a 3.5% tax surcharge on income above $250,000 for individuals and $500,000 for married couples filing jointly. The legislature approved a plan to effectively have the state pay the excess above the current 4.5% cap to the tune of about $400 million.
Once the courts killed the initiative, there is no need for that maneuver, making that $400 million available to add to the proposed tax relief.
Second, state revenues are coming in faster than anticipated. And what that means is there's no need for that interim step.
House Majority Leader Ben Toma, R-Peoria, said the current spike in inflation convinces him of the need to move faster.
"People are starting to really feel it at the gas pump and other places,'' he said. "It's important that we accelerate this and give people real relief as quickly as possible.''
But it's that pain at the pump that is causing some GOP lawmakers to question whether this is still the best plan.
It starts with the fact that the big winners of going to a flat tax rate, whether it ends up at 2.5% or something less, are those in the top tax brackets.
That was borne out by an analysis of last year's plan by legislative budget staffers who put the savings for someone making between $25,000 and $30,000 at just $11 a year. Individual in the $50,000 to $75,000 taxable income range would net $96.
But the break for taxpayers with income between $250,000 and $500,000 was pegged at an average of $3,071. And those making from $500,000 to $1 million wold pocket more than $7,300.
Rep. David Cook, R-Globe, said he wants to look at using some of the money to provide at least a temporary break from the state's 18-cent-a-gallon gasoline tax.
While that might not mean much when fuel is selling at $4.60 a gallon, he noted the Department of Transportation puts the annual savings for each motorist in excess of $100 a year. And that's more than the relief the flat tax plan would provide to those making less than $75,000.
More to the point, Cook said, it would be equal relief to all, regardless of income. Plus it also would provide particular help to businesses that rely on transportation, from Uber drivers to delivery vans.
And he said it wouldn't hurt road construction and repair, as the surplus could be used to replace the missing gas tax dollars.
Sen. Michelle Ugenti-Rita, R-Scottsdale, also said she's not convinced that simply enacting a new flat tax plan makes sense.
"I am right now talking with the governor's office and exploring other opportunities to provide relief to taxpayers,'' she said. And one of them, Ugenti-Rita said, could be the gas tax.
"What I'm not going to do is rush through this and miss an opportunity for taxpayers who I think we all can agree have been struggling with record high inflation, gas prices, prices at the grocery store or cost-of-living expenses,'' she said.
Then there's the question of what's the rush to approve a plan now, given that lawmakers are scheduled to be in session through late April -- and likely beyond that given recent experience.
"We have plenty of time,'' Ugenti-Rita said. "And there are lots of meaningful options to explore.''
Lujan said if lawmakers try any additional maneuvers, like repealing the revised plan to quash a new referendum and replacing it yet again, foes of the flat tax still have the option of starting yet another petition drive, collecting signatures as often as necessary.
"Whack-A-Mole is definitely how to explain what we do these days,'' he said of actions by the Republican-controlled legislature. "It's just one thing after another.''
On Twitter: @azcapmedia