Arizona voters have the legal right to review — and override — the $1.9 billion tax cut plan that mainly benefits the wealthy approved earlier this year by the Republican-controlled legislature, a judge ruled Wednesday.
In a 12-page ruling, Maricopa County Superior Court Judge Katherine Cooper rejected arguments by the Arizona Free Enterprise Club that the constitutional right of voters to second-guess legislative decisions does not extend to matters involving funds.
The judge acknowledged that there is no right to refer tax hikes to the ballot. That is because such a petition drive would deny government the ability to operate.
But this case, Cooper said, is different.
She said the referendum, if successful, actually would leave the state with more revenue than it needs. So the outcome of the vote, Cooper noted, would not hamper government operations.
Wednesday’s ruling is unlikely to be the last word. Referendum foes are likely to appeal.
And even if they lose that legal fight, their attorneys are preparing a backup plan to quash the referendum with arguments that, despite a finding to the contrary by the secretary of state, there are not enough valid signatures on the petitions.
At the heart of the legal fight is the tax cut plan approved on a party-line vote and signed by Gov. Doug Ducey.
Under current law, anyone with taxable income up to $26,500 a year pays a tax rate of 2.59%, with those 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%
SB1828 would impose a single 2.5% tax rate on all incomes beginning in 2025. Legislative budget staffers peg the revenue loss at $1.9 billion a year.
Ducey has repeatedly sought to portray the measure as providing a tax cut of about $300 a year for the “average Arizonan.”
But an analysis of the package by legislative budget staffers put the savings for someone making between $25,000 and $30,000 a year at $11. That increases to $96 for those in the $50,000 to $75,000 taxable income range.
Bigger benefits kick in at higher income levels.
Taxpayers with income of between $250,000 and $500,000 would see an average $3,071 reduction in what they owe each year according to the staff analysis. That increases to more than $7,300 annually for those earning from $500,000 to $1 million.
Foes gathered more than the 118,823 valid signatures needed to hold up enactment until voters get the last word. That led to the bid by the Free Enterprise Club to quash a vote as illegal.
Cooper disagreed, saying the framers of the Arizona Constitution said voters have “broad authority” to prevent adoption of any laws.
“Referendum is a check on the legislative process to ensure that legislators do not simply serve the particular interests of a few people,” she wrote. “If a majority vote in favor of a referendum, then the matter referred is nullified and can only become a law if approved by the voters.”
Cooper did agree with the Free Enterprise Club that there is that exception for what are “appropriation bills.” She said these are measures that set aside public funds for a specific government purpose.
But she said that is not what is in SB1828.
“It adjusts Arizona’s income tax rates, lowering them over time to a ‘flat tax,” the judge said.
“It does not set aside any tax revenue of a certain sum for any specified purpose nor does it dictate how agencies use that revenue,” Cooper continued. “SB1828 does not fall under the well-recognized definition of ‘appropriation.’ ”
In his backup plan, Attorney Kory Langhofer, who represents the foes of the tax cut, already has prepared a litany of what he contends are legal flaws with the petitions, flaws that could reduce the number of valid signatures.
Among the allegations is that some paid circulators had not registered with the secretary of state as required or that they collected signatures before registering. These also are claims that some of the registration forms are missing required information like providing a full address.
Any of those would disqualify all the signatures those circulators collected, possibly leaving the petition drive short of the 118,823 valid signatures necessary to force a public vote.
Other claims include issues of handwriting irregularities and missing dates or addresses of those who have signed the petitions.