(AP Photo / Ross D. Franklin, Pool, File)
PHOENIX – A new voter-approved tax on high-income Arizona residents that will increase education spending is firmly in the sights of Gov. Doug Ducey, with the Republican promising on Friday to see the proposed new tax 208 overturned either by the courts or by the legislature controlled by the GOP.
Ducey told the Valley Partnership group of companies that he was advising people who asked him questions about the new 3.5% surtax on the income of the rich to wait to transfer their investments to other states because the Payments on the current tax won’t be due until April 2022. Meanwhile, he’s working to kill the measure, and he’s laid out his two-pronged strategy to get there.
Business groups and the GOP-led legislature are challenging the new tax, and Ducey noted that the state’s Supreme Court accelerated that effort by accepting the case before it could be fully heard in court. of first instance. Ducey filed a court friend brief urging the court to act, and he will be heard on April 20. Ducey appointed the majority of the judges.
If that effort fails, Ducey said he is working with House and Senate leaders to find ways to neutralize the new tax, which he says will make the state’s tax code uncompetitive.
“Prop 208 has pledged extra dollars for K-12 education. I had no problem with that, ”said Ducey. “But what he also did was lower our top tax rate from 4.5% to 8%. This is an increase of 77%. With whom I have real problems.
There are several avenues the legislature could take, but the one that eliminates about a third of the estimated $ 827 million per year in new revenue has already been passed by the Senate. This measure, by GOP Sen. JD Mesnard, creates a new section of the tax code only for small businesses, setting the maximum tax rate at 4.5% but avoiding the new surcharge of 3.5%.
Arizona small business income is currently taxed on personal income tax returns. New tax voters approved in November impose a 3.5% tax surtax on income over $ 250,000 for individuals or over $ 500,000 for couples. Opponents backed by the Arizona Chamber of Commerce and Industry spent millions trying to persuade voters it would hurt small businesses.
Supporters have said the effect of the tax is on homeowners’ income, but Mesnard argued at a committee hearing in February that the introduction of the new small business tax is fair.
“I obviously heard regularly during the campaigns that the surtax was not aimed at small businesses, would not have an impact on small businesses,” he told the Senate finance committee. “In many ways, it only codifies that sentiment. “
Democratic Senator Martin Quezada said during a Senate debate that Mesnard’s plan was “a direct attack on the will of the voters.”
“This is another reason voters don’t trust us,” Quezada said. “They are working hard to collect signatures, put a measure on the ballot that will solve a problem that we have failed to solve ourselves as lawmakers. They pass a proposal and we’ll do something like that.
Other ways to make the new tax less painful for the rich are contained in a state budget proposal currently being negotiated where GOP lawmakers are considering a massive tax code overhaul, at Ducey’s request. Its January budget proposal contains a tax cut of $ 200 million a year that would drop to $ 600 million in three years. But with an estimated budget surplus of over $ 1 billion, Republicans in the Senate and House are looking well beyond that figure.
Republican Representative Ben Toma is leading efforts in the House to overhaul the tax code. His proposal eliminates the current progressive tax brackets and replaces them with a 2.5% flat-rate tax on all income levels. Under the current progressive tax structure, taxes start at 2.59% on the first $ 26,500 of income and increase to a maximum of 4.5% on income over $ 159,000.
The flat tax proposal means the rich would see the biggest cuts. Toma said there was also talk of capping the maximum tax with the 208 Proposition surtax at 5% and using the general fund to make up the difference in the special fund created by the new initiative.
Half of the new tax on the rich will be used to increase graduate teachers, 25% to increase the salaries of cafeteria workers, bus drivers and other support staff, and the rest for teacher training. , vocational education and other initiatives.
The initiative was a consequence of a 2018 teachers’ strike that highlighted low salaries for educators and a slow rebound from budget cuts enacted during the Great Recession. The walkout resulted in higher salaries for teachers, but many education interest groups said it was insufficient. A grassroots group was then organized to pass the initiative.
Ducey said in the Valley Partnership online meeting on Friday that he respects the initiative process and the will of the voters, then explained the reasons he gutted the measure. And he said he supported more money for K-12 schools even as he struggled to eliminate the new tax.
“I think there is a way to fix this or have the dollars available for K-12 education and keep our state competitive. One way is judicial, the other way is legislative, ”he declared. “And you should see some resolution on this and some clarity around this issue over the next few months. But it will be this session.