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Voters can’t decide fate of massive tax cuts, Arizona Supreme Court rules

The Arizona Supreme Court has ruled that voters cannot determine the fate of a flat tax proposal that Republican lawmakers and Gov. Doug Ducey championed last year.

Arizona’s constitution broadly lets voters refer new laws to the ballot, and that’s what happened to the $1.3 billion tax cut package that legislators approved in 2021. However, such referrals are not allowed for laws related to the “support and maintenance” of state government, and the Supreme Court said Thursday that the income tax cuts fall into that category.

That means the November ballot measure won’t happen.

The court ruled in a legal challenge brought by the Arizona Free Enterprise Club, which advocates for lower taxes and less government spending.

Under the tax plan, 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 reduce state revenues by about $1.3 billion annually.

And if state tax revenues hit certain thresholds over the next few years — $12.8 billion in 2022 and $13 billion in 2023 and subsequent years — lower rates will phase in, ultimately hitting the 2.5% flat rate that was initially proposed. The earliest that can happen is 2023. (Budget analysts said last month that the state is on pace to shatter those marks.)

Education advocacy groups immediately set out to force a public vote on the tax cuts, which disproportionately benefit wealthy Arizonans. 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.

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, imposed 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. However, a judge ruled in March that the voter-approved school spending is unconstitutional, and the state Supreme Court is all but certain to uphold that ruling.

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The education groups, campaigning under the name Invest in Arizona, spent last summer gathering signatures to put the tax cuts on hold until voters decided their fate this year. They submitted more than 215,000 signatures to force the election.

This report was first published by the Arizona Mirror.

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