Tax laws

Education group challenges new state tax laws

The Arizonans could have the final say on a nearly $ 2 billion tax cut plan that mainly benefits the wealthy.

The organizers of what had been the Invest in Ed initiative that voters approved in November have crafted three separate proposals to be put to the ballot in 2022. They want the public to decide whether or not to ratify the decision by state lawmakers. from:

– Create a flat tax rate of 2.5%, removing the current progressive rates;

– cap anyone’s taxes at a maximum of 4.5%, including the 3.5% surtax in Proposition 208;

– Create a new tax category for small business owners to allow them to avoid having to pay part of this surtax.

Donors need 118,823 valid signatures on petitions by September 28 to force a vote. Considering the number of signatures that are normally disqualified, a more realistic target would be closer to 150,000.

But the groups involved in the effort have a proven track record not only in getting proposals on the ballot, but also in getting voters to follow them.

Potentially more importantly, if they achieve that goal, it immediately prevents one of the contested measures from taking effect until the 2022 election. At this point, voters could say whether they agree with what the legislature. did or not.

A spokesman for Gov. Doug Ducey, who has championed the tax cut plans, said he would have no comment unless and until donors get the signatures.

Instead, CJ Karamargin said the recently concluded legislative session was “one of the most successful sessions in recent memory”. And he said that includes the three things the enemies hope to put on the 2022 ballot.

At the heart of the fight are two questions.

The first is whether the state should forgo nearly $ 2 billion in revenue. This is the amount that would be collected without the three measures at issue.

Second, there is the question of who should benefit if there are tax cuts.

David Lujan, one of the organizers of Invest in Education – which is now renamed Invest in Arizona – said he believed there was strong public opposition to what the Republican-controlled legislature had adopted.

“This is a tax giveaway for the rich and Arizona’s future in the form of tax cuts for the rich,” he said.

A study by legislative budget staff on the flat tax proposal and the 4.5% cap shows that 53% of the savings would go to those with taxable income above $ 1 million per year. In contrast, those in the $ 50,000 or less range would see only 1% of the savings.

Specifically, the study shows that the average annual tax reduction for a person between $ 25,000 and $ 30,000 would be $ 5.

But someone earning more than $ 500,000 but less than $ 1 million would see $ 10,035 in annual relief from what they would otherwise have to pay. This comes to nearly $ 44,800 for those in the $ 1 million to $ 5 million range, and an average tax relief of almost $ 350,000 for those in the $ 5 million and above tax category.

“Arizona has a lot of higher priorities, like funding our public schools, funding for children’s health care, infrastructure, which we think we should focus on before giving huge reductions in funding. ‘taxes on the rich,’ said Lujan.

The legislative changes are the result of two distinct forces.

Many Republicans have long advocated a flat tax rate.

The current system puts in place multiple brackets, with rates starting at 2.59% for income up to $ 53,000 per year for married couples and capping at 4.5% on income over $ 318,000. This would replace all of this, in stages, with a single rate of 2.5%.

Separately, lawmakers from Ducey and the GOP have said that if Proposition 208 is allowed to go into effect as designed, it will dampen economic recovery.

This is because the measure imposes a 3.5% surtax on earnings over $ 250,000 per year for individuals and $ 500,000 for married couples. Add to that the maximum rate of 4.5% and that creates an effective tax rate for the richest 8%, one of the highest in the region.

Lawmakers are powerless to reverse the surtax as approved by voters. Instead, they created a new maximum rate of 4.5%, effectively reducing the other income tax rate for those affected to just 1%.

This plan, however, still provides the funds for K-12 education, with what is not paid by the rich in place of general tax revenues paid by everyone.

This is not the case with SB1783. It creates a new “small business” tax category which, because it did not exist when Proposition 208 was approved, is exempt from the surtax.

And it could reduce education collections, which could otherwise reach $ 940 million, by more than $ 200 million per year.

Lujan said he disagreed with the argument by the governor and Republican supporters of the tax cut plan that a top tax rate of 8% would hurt Arizona’s economy or make the state less attractive.

He stressed that the new laws had been in effect since their approval. And Lujan said there has been a lot of publicity about the changes.

“Since that time we have seen reports that purchases of luxury homes are increasing in the valley,” Lujan said.

“We had a lot of new companies here after they knew (the proposal) 208 was going to be on the books,” he continued. “And that’s what Arizona voters voted for.”

There is also the fact that Arizona has a multi-level tax structure.

So, for example, a married couple with taxable income of $ 650,000 would pay this 8% rate only on $ 150,000 – the amount over $ 500,000 – anything below that rate is subject to the rates. normal state taxation.

The burden of getting the signatures within 90 days is not insurmountable.

Lujan pointed out that Invest in Ed supporters got more than 220,000 signatures during the same period in the first effort to put the measure on the ballot in 2018. The only reason it is not that emerged at that time is that the Arizona Supreme Court concluded that the wording of the legal description was misleading.

The 2020 version was voted, even with the Covid epidemic and stay-at-home orders.

Specifically, Lujan noted that one of the groups involved in the petition campaign is Save Our Schools Arizona. This is the same group that deposited enough signatures in the same 90-day period to block the legislature’s decision to increase the number of children eligible for the vouchers.

“They have shown that they know how to carry out referendums,” he said.

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