Republican lawmakers squared off against GOP Gov. Doug Ducey on Thursday by passing legislation to grant Arizonans a reprieve on their state income taxes.
Almost entirely along party lines, Republicans approved a proposal to reduce all income tax rates in Arizona by 0.11 percentage points. State budget analysts estimate that would reduce tax collections by roughly $150 million, compared to the alternative path proposed by Ducey.
The governor wants to conform to the federal tax code in the same manner Arizona historically does, and pocket the extra tax collections in the state’s rainy-day fund. That would undercut the intent of changes to the federal tax code signed by President Trump in December 2017, which were meant to give taxpayers relief, according to Rep. Ben Toma, R-Peoria.
Taking the wait-and-see approach advocated by Ducey would “take money from the hardworking taxpayers of Arizona,” said Toma, who along with Sen. J.D. Mesnard sponsored the conformity measure.
But the plan can’t go into effect without Ducey’s approval, too, and the governor has consistently opposed efforts to conform in a way that lowers the state’s potential revenue collections. He now faces the choice of whether to veto a bill supported by a wide majority of his own party. Sen. Kate Brophy McGee, R-Phoenix, was the only Republican in either chamber to vote against the bill.
A spokesman from the governor’s office could not immediately be reached for comment.
Democrats unanimously argued against relinquishing what some analysts have estimated could exceed $200 million in new revenues for state coffers.
“We need to invest in Arizona,” said Rep. Mitzi Epstein, D-Tempe, who argued that Arizonans would rather see the state invest in education or infrastructure than see a minimal reduction in their tax bills. “This income tax cut is not the help they need.”
Rep. Regina Cobb, R-Kingman, countered that it’s not a tax cut if the taxes won’t be collected in the first place.
“This is not a tax cut. This is an offset,” she said. “If we don’t do anything, this is a tax increase.”
If Ducey signs SB 1143, officials with Department of Revenue have said they’re prepared to immediately begin adjusting tax brackets, even as some Arizonans are already filing their state tax returns.
Mesnard, R-Chandler, said it will take roughly four weeks for the department to fully incorporate the changes outlined in the bill, but anyone who’s already received a tax return at the higher rate would be made whole with an additional refund.