A judge agreed Monday to give foes of the $1.9 billion in tax cuts approved by legislators enough time to see if they can gather the signatures to force a public vote before deciding whether their efforts are legal.
Maricopa County Superior Court Judge Katherine Cooper rejected a request by attorney Kory Langhofer to hear his arguments ahead of Sept. 28 that the measures can’t go to the ballot. That is the deadline for submitting referenda petitions.
Langhofer, who represents the Arizona Free Enterprise Club, told Cooper that a ruling ahead of the deadline would make sense. He said if she decides the three tax-cut measures are not subject to public veto, there would be no need for his client to have to go through the expense of trying to determine if each of the signatures is valid.
But Roopali Desai, the attorney for Invest in Arizona, the group trying to overturn the tax cuts, told Capitol Media Services she sees another reason Langhofer filed suit even before the petition deadline and wants a ruling before then: to affect the signature gathering process.
“I think that they think this impacts morale and signature gathering by volunteers,” she said.
No matter what Cooper rules, the other side is virtually certain to appeal. But if she were to side with Langhofer — and do so before that Sept. 28 deadline — petition circulators could be left with the belief that there’s no reason to make that last-minute push to reach the goal.
“By telling people there is a likelihood that signatures are going to be invalidated it affects their view,” Desai said. “They want a ruling, they want to file this case early to impact that signature gathering effort.”
In fact, Desai said she believes that’s why Langhofer filed suit on July 21 even as volunteers are in the streets trying to collect the 118,823 valid signatures on each of three petitions by that Sept. 28 deadline.
She said, though, the tactic won’t work.
“I think people are very motivated,” Desai said. “When they hear that somebody is trying to reverse what they’re doing, I think that actually motivates them more.”
Langhofer, for his part, repeated after the hearing that a ruling the measures are not subject to public veto would eliminate the need to start checking signatures for validity. But he told Capitol Media Services there was a legal reason to file suit and start the legal process now.
“If we’d waited until after Sept. 28 to file, don’t you think they would have argued laches?” he asked. That refers to the legal principle that people who unreasonably delay bringing court actions can be found to have forfeited their right to sue.
“I’m certain that would have happened,” he said of Desai. And that would have undermined his ability to argue that the constitutional right of voters to second-guess legislative actions does not apply to tax matters.
Hanging in the balance is whether Arizona voters will get the last word on a package of tax cuts that largely benefit the most wealthy.
The Arizona Constitution says that, with just a few exceptions, all legislation does not take effect until after 90 days following the end of the session. This year that 90th day is Sept. 28.
That time period gives anyone unhappy with any measure the time to gather signatures to refer it to the ballot. A successful petition drive holds up enactment of the law until the next general election — in this case, Nov. 8, 2022 — where voters can decide whether to ratify or reject it.
One exception to the right to refer is on measures “for the support and maintenance of the departments of state government and state institutions.” Langhofer contends these three pieces of legislation, because they deal with taxes, fits within that exception.
But Desai points out that if the measures qualify for the ballot and the tax cuts are canceled, that would not impair state operations. Instead, it actually would leave Arizona government with a lot more money than needed to cover anticipated expenses.
The biggest of the measures that Invest in Arizona wants to send to the ballot scrap the current progressive tax brackets.
Under current law, anyone with taxable income up to $26,500 a year pays a tax rate of 2.59%, with those dollar figures doubled for married couples filing jointly. That rate increases in steps, to the point where taxable earnings on individuals above $159,000 are taxed at 4.5%.
The legislation approved by the Republican-controlled legislature on a party-line vote and signed by Gov. Doug Ducey would impose a single 2.5% tax rate on all incomes beginning in 2025. That change alone reduces state revenues by more than $1.5 billion a year according to legislative budget staffers, with the biggest benefit to those at the top of the income scale.
A second is designed to protect the richest taxpayers from the effects of Proposition 208. That measure, approved by voters in November, imposes a 3.5% surcharge on income above $250,000 for individuals and $500,000 for married couples, with the proceeds of up to $940 million a year earmarked for K-12 education.
Because it was enacted at the ballot, lawmakers cannot repeal it.
But what they did instead is impose an absolute 4.5% cap on all income taxes. And with those affected paying that 3.5% surcharge, it effectively reduces the balance of their income taxes to just 1%, further reducing state revenues.
The third is a work-around designed to allow some business owners to avoid that surcharge entirely.
It allows them to file their taxes not on their individual returns but instead under a new category of small businesses. And because that category did not exist when Proposition 208 was approved, those businesses escape the surcharge.
Legislative budget staffers said that will reduce Proposition 208 collections by about $292 million.