Education advocacy groups on Tuesday filed hundreds of thousands of signatures to block Gov. Doug Ducey’s sweeping income tax cuts, the largest in state history, from going into effect and forcing a public vote on them.
For that to actually happen, at least 118,823 of the 215,787 signatures the Invest in Arizona coalition submitted must be deemed valid by elections officials. If they are, Arizona voters will decide the fate of the tax cuts in November 2022.
Ducey’s income tax cuts, which serve as his legacy policy achievement during his two terms as governor, dramatically reform Arizona’s tax system. Instead of a progressively graduated system with a maximum rate of 4.5%, Arizona will shift to two income tax rates: 2.55% for people who earn $27,272 annually and 2.98% for those who earn more than that. Legislative budget analysts estimate those cuts will cost the state about $1 billion in revenue.
The median household income in Arizona is about $62,000, which will realize a tax savings of $42 under the new proposal. The benefit of the tax cut skyrockets as income increases: Households making at least $500,000 will save $10,000; those making at least $1 million save nearly $45,000; those making more than $5 million will save nearly $350,000 a year. (Those estimates by legislative budget analysists also include the effects of legislation capping the maximum income tax rate at 4.5%, even for those subject to the Invest in Education surcharge. That law will go into effect.)
The referendum is a reaction to the tax cuts Ducey championed, and which serve as his legacy policy achievement during his two terms as governor. The tax cuts themselves came in response to, and were designed to blunt the effect of, the Invest in Education Act on wealthy Arizonans. That measure, which voters approved in 2020, imposes a 3.5% surcharge on income greater than $250,000 for individuals and $500,000 for couples, with the money directed to public schools to increase teacher pay and boost overall funding.
Initially, the Invest in Arizona campaign sought to stop three laws from taking effect later this month: Senate Bill 1827, which caps the tax rate at 4.5% for those with incomes greater than $250,000 for individuals or $500,000 for joint filers; Senate Bill 1828, which changes Arizona’s income tax system to only two brackets, and creates a single 2.5% rate as soon as 2023 if state revenues hit certain triggers; and Senate Bill 1783, which creates a new business individual income tax with a 4.5% flax rate that some taxpayers can opt into — and any taxpayers who do so would be exempt from the Invest in Education surcharge.
Rebecca Gau, executive director of Stand for Children, said the coalition submitted 215,787 signatures to stop the income tax cuts, and 123,531 to block SB1783 on Tuesday. The groups stopped pushing for blocking SB1827, the coalition announced on Tuesday.
Because the referendum to block SB1783 gathered only 5,000 more than the minimum, there is virtually no chance it will survive the signature review process.
Besides the monumental task of gathering over 118,000 signatures in just 90 days, the Invest in Arizona coalition is likely to face challenges in court.
On July 21, shortly after Invest in Arizona campaigns launched, the Arizona Free Enterprise Club filed a lawsuit seeking to make the groups’ leaders, volunteers and paid circulators time and efforts futile.
The conservative group, which supported the tax cuts, argues that the new tax laws are exempt from the ballot referral process under Arizona’s Constitution.
The coalition called the legal arguments “farfetched, unfounded, and untested, merely for the purpose of eroding the rights of Arizona citizens and voters.”
An oral argument in that case is scheduled for Nov. 5.
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