Repeal, replace ‘21 tax cut aims at Prop. 307

Education groups pushing a referendum to repeal the almost $2 billion in tax cuts passed last year say a new Republican plan to repeal and replace the cuts, which would nix their effort, is an attempt to undercut the will of the voters. 

However, Sen. J.D. Mesnard, R-Chandler, one of the Republicans who spearheaded last year’s tax cut, says repealing and replacing last year’s cut with another tax cut bill is not a response to the referendum, but rather a response to the legal uncertainty surrounding Proposition 208, the 2020 education funding initiative currently being challenged in court. He said he has been considering passing a new tax cut bill since November. 

“There’s a general agreement that we should repeal and replace,” Mesnard said, although he also said he hasn’t spoken to all his Republican colleagues yet. 

Mesnard and House Majority Leader Ben Toma, R-Peoria, the main architects of last year’s tax cuts, told the Associated Press earlier this week that they are looking to repeal it and replace it with a new version, which would end the referendum. 

Stand for Children Executive Director Rebecca Gau said voters were “fed up,” and that the repeal-and-replace effort was a mistake in an election year, despite a new legislative map the state’s Independent Redistricting Commission approved last month that appears to favor Republicans in 2022. 

“I don’t care what people think about the midterm Republican benefit and redistricting,” Gau said. “People aren’t stupid; they care about these issues, and it’s going to show up at the ballot box in November.” 

Arizona voters approved Prop. 208 with 51.7% of the vote in 2020, imposing an income tax surcharge of 3.5% on income above $250,000 for individuals or $500,000 for those filing jointly to raise money to fund education. Republican lawmakers responded last year by passing a large tax cut along party lines, the main features of which were creating a new small business income tax to let some filers get around paying the Prop. 208 surcharge and phasing in a flat 2.5% income tax rate by 2025.  

After the Legislature adjourned in late June 2021, the Invest in Arizona coalition began collecting signatures to force a referendum on the tax cuts. While their effort to challenge the small business tax cut failed to qualify, their challenge to the flat tax got enough signatures. It will appear on the ballot in November 2022 as Proposition 307, only if the flat tax law is not repealed and the referendum withstands litigation. 

If Democrats oppose the effort unanimously, it will need unanimous Republican support to pass. One undecided could be Sen. Paul Boyer, R-Glendale, who was one of a handful of Republicans who initially opposed the tax cut last year due to concerns about how it would affect municipal budgets. He told the Arizona Capitol Times he had not heard anything about Mesnard’s proposal and that it is premature for him to comment on it now. 

“I’m waiting to see more,” said Sen. T.J. Shope, R-Coolidge. “I’m generally in favor of tax cuts. That’s where I find myself in what makes me a Republican, I guess.” 

Mesnard said he expects a replacement tax cut to pass more easily than the original ones the Legislature passed in 2021. With Democrats unanimously opposed to what they saw as a giveaway to the rich, leadership had to get every Republican on board, a process which took more than a month and delayed the end of the session as the tax cut’s supporters tried to appease a handful of holdouts. This time, Mesnard said, those issues are not going to be relevant. And there is more money available due to higher-than-expected state revenues. 

“If the footprint size doesn’t change, I don’t see how people would say, ‘Now you’re competing with my stuff,’” Mesnard said. 

Then again, it could change – Mesnard did say he wants to go bigger this time around. 

Opponents of last year’s tax cuts see them as a giveaway to the wealthy taxpayers who receive the most benefit from them. David Lujan, who heads the Children’s Action Alliance, said candidates for office this year should answer “whether they support reducing state revenue by billions to give tax cuts to the rich or would they rather see that money invested in our public schools and communities.” 

“Arizona’s economy cannot afford another decade of the worst-funded schools in the nation, but allowing these tax cuts for the rich to go into effect will most certainly make that a reality,” said Lujan, whose group backs the referendum. 

Mesnard said the Invest in Arizona coalition ignores the fact that most taxes are paid by the wealthy and still will be. As for education funding, Mesnard said Arizona is already paying an unprecedented amount of money per pupil. 

Arizona is often ranked in the bottom percentile of state funding per pupil – a report by Education Data Initiative from August 2021 put Arizona at No. 49 of 50 states in per-pupil public education funding – but Mesnard said that the low rankings he has seen are not great apples-to-apples comparisons between Arizona and other states. In terms of the percentage of the general fund going toward K-12 education, Mesnard said Arizona ranks about 10th or 12th nationally. 

“We are clearly prioritizing K-12 funding,” Mesnard said. 

The other potential roadblock to getting Prop. 307 on the ballot comes from a lawsuit brought by the Arizona Free Enterprise Club. The group challenges the flat tax law’s referability and the referendum’s signatures, raising issues mostly related to circulator registration defects. A Maricopa County Superior Court judge ruled in December that the tax law could in fact be referred to the ballot, though the Free Enterprise Club has appealed that ruling. The judge has not ruled on the other issues in the case. 

Arizona Education Association President Joe Thomas said he thought the referendum would stand up in court. 

“I think we’re going to see it (Prop. 307) on the ballot unless there are, you know, some underhanded tactics by the Legislature,” Thomas said.