PHOENIX (AP) – A new tax approved by voters on high-income Arizonans that will increase education spending is firmly in the sights of Governor Doug Ducey, with the Republican promising on Friday that he would see the new Proposition 208 tax canceled by the courts. or by the Legislature controlled by the GOP.
Ducey told the Valley Partnership business group that he has been advising people who question him about the new 3.5% surcharge on the income of the wealthy to wait to take their investments to other states because current tax payments will not be due until April. of 2022 Meanwhile, he is working to make the measure die, and he has devised his dual strategy to do just that.
Business groups and the Republican-led legislature are contesting the new tax, and Ducey noted that the state Supreme Court has stepped up this effort by accepting the case before it can be fully heard by a lower court. Ducey has filed a request from a friend of the court urging the court to act, and he will be heard on April 20. Ducey appointed most 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 said will make the state’s tax code uncompetitive.
“Proposal 208 promised additional dollars for K-12 education. I had no problem with that, ”said Ducey. “But what it also did was to reduce our top-level tax rate from 4.5% to 8%. It was an increase of 77%. That I have real problems with. “
There are several paths that the legislature could take, but one that eliminates about a third of the estimated $ 827 million a year in new revenue has already been approved by the Senate. This measure, by GOP Senator JD Mesnar d, creates a new tax code section for small businesses only, setting the maximum tax rate at 4.5%, but avoiding the new 3.5% surcharge.
Arizona small business income is currently taxed on personal tax returns. New tax voters approved in November impose a 3.5% tax surcharge on income above $ 250,000 for individuals or above $ 500,000 for couples. Opponents supported by the Arizona Chamber of Commerce and Industry have spent millions trying to persuade voters that it would hurt small businesses.
Proponents said the tax’s effect is on owners’ income, but Mesnard argued at a committee hearing in February that establishing the new small business tax is fair.
“Obviously, during campaigns heard consistently, the surcharge is not aimed at small businesses, it would not affect small businesses,” he told the Senate Finance Committee. “In many ways, it just encodes that feeling.”
Democratic Senator Martin Quezada said in a full Senate debate that Mesnard’s plan was “a direct attack on voters’ will”.
“This is exactly another reason why voters don’t trust us,” said Quezada. “They work hard to collect signatures, put a measure on the ballot that will solve a problem that we don’t solve as legislators. They come up with a proposal and we go and do something like that. “
Other ways to make the new tax less painful for the wealthy are contained in a state budget proposal now under negotiation, where Republican Party lawmakers are considering a massive reform of the tax code at Ducey’s request. Its January budget proposal contains a tax cut of $ 200 million per year that would increase to $ 600 million in three years. But with a budget surplus estimated at $ 1 billion, Senate and House Republicans are looking far beyond that figure.
Republican MP Ben Toma is leading efforts in the House to reform the tax code. His proposal eliminates the current gradual tax brackets and replaces them with a flat 2.5% tax on all income levels. Under the current progressive tax structure, taxes start at 2.59% on the first $ 26,500 of revenue and increase up to a maximum of 4.5% on revenue above $ 159,000.
The fixed tax proposal means that the rich would see the biggest cuts. Toma said that there is also talk of limiting the maximum tax with the surcharge of Proposal 208 to 5% and using the general fund to compensate for the difference in the special fund created by the new initiative.
Half of the new tax on the wealthy will be used for increases in accredited teachers, 25% for increasing salaries for cafeteria workers, bus drivers and other support staff, and the remainder for teacher training, professional education and other initiatives.
The initiative was the result of a 2018 teacher strike that highlighted low educator salaries and a slow recovery from budget cuts enacted during the Great Recession. The shutdown ensured higher salaries for teachers, but many interest groups in education said it fell short. A grassroots group then organized to approve the initiative.
Ducey said at the Friday Partnership online meeting that he respects the initiative process and the will of voters – then outlined his reasons for destroying the measure. And he said he supports more money for K-12 schools, even as he works to eliminate the new tax.
“I think there is a way to fix this or somehow have the dollars available for K-12 education and maintain our competitive state. One way is judicial, the other is legislative, ”he said. “And you should see a resolution on that and clarity around that issue at some point in the next few months. But it will be this session. “