The 2019 legislative session kicks off in less than two weeks, and the most urgent matter on legislators’ plates is also likely to be the most explosive.
The issue? Tax conformity.
While it sounds complicated (and boring), it’s a fairly straightforward policy. When Congress makes changes to the federal tax code, states generally conform their tax codes to match the feds.
The Trump tax cut bill resulted in the elimination or modification of numerous itemized deductions such as moving expenses and mortgage interest.
If Arizona conforms its tax code by eliminating or modifying the same deductions, some residents will owe more in taxes, leaving state coffers with additional revenues estimated in the $200 million range.
That’s a significant chunk of change, and why fireworks are expected to fly at the Capitol.
Right now, everyone seems to agree conformity is necessary, but there are three competing ideas on what should happen with additional revenues.
Governor Ducey wants to use the first year of conformity revenue to beef up the state’s rainy day fund. That’s not a bad idea, considering many economists are predicting a slowdown or possible recession in the next year or two.
Legislative Democrats have talked about using the additional money to prop up K-12 funding, an area of the budget still smarting from the billions in cuts made during the last recession.
The third idea, which has been championed by Republicans such as House Speaker J.D. Mesnard, is to pair conformity with income tax cuts and/or higher standardized deductions that would erase any revenues.
This is an expected response from Mesnard and many of his fellow tax-cut ideologues. Despite evidence that excessive tax cuts are to blame for Arizona’s poorly-funded schools, they continue to tout cuts as the cure for our state’s ills.
But other Republicans seem to understand the state is in dire need of cash. Some of these Republicans voted in favor of a new vehicle registration fee, while others are actively promoting an increase in state-run gaming, all in the name of increased revenues.
The split among Republicans puts Democrats in a rare position of power. If Republicans cannot coalesce around a deal, competing sides will need Democratic votes to reach a solution.
The best scenario aligns Democrats with the governor and moderate Republicans. Dems should let the governor sock away funds this year, but not without a promise that future funding be dedicated to public education. And not without a guarantee that future tax cuts are off the table.
If Democrats could finagle that bargain, they’d effectively upend the 10-year status quo that has favored tax cuts over public schools and created one funding crisis after another.
Without a doubt, this is a monumental task for Democrats. I don’t have much faith in Ducey’s willingness to work with Democrats or commit to a moratorium on tax cuts. But if Democrats could mobilize a wave of public support, they just might force the governor’s hand.
This, of course, is where the #RedforEd movement comes into play.
The Legislature will be working to rush through conformity because residents are filing their taxes soon. #RedforEd already has an activated grassroots network and could mobilize support quickly. They also have reasoning to take on this fight.
When the state supreme court threw the Invest in Ed initiative off the ballot, the #RedforEd movement lost a key funding source for teacher pay raises and smaller classrooms. Conformity is the best option right now to find at least part of the revenues needed to achieve those goals.
By drawing a bright red line between the funding hole for public education and the increased revenues possible from conformity, #RedforEd could turn this issue into a rallying cry for public education supporters and a win for hundreds of thousands of students.
Let the fireworks begin.