As Gov. Doug Ducey plans to use revenue from a proposed reform of Arizona’s income tax code to bolster the state’s rainy day fund, House Speaker J.D. Mesnard is publicly urging him to use the money for tax cuts, and he’s getting some help from a prominent figure in the conservative movement.
Mesnard and Grover Norquist, the president of Americans for Tax Reform, penned an op-ed in The Arizona Republic on Wednesday calling on Ducey to conform Arizona’s income tax code to the federal tax code, and to put the revenue it would generate back into taxpayers’ pockets.
Arizona traditionally conforms its tax code to the federal code. Doing so means taxpayers (and their accountants) aren’t playing by two sets of tax rules. But because the Tax Cuts and Jobs Act, the federal tax cut package signed by President Trump in late 2017, eliminated a host of deductions, tax conformity would eliminate those deductions at the state level, as well. The Ducey administration estimates that the change would cost taxpayers about $200 million in taxes for the calendar year 2018.
Mesnard and Norquist wrote in the Republic that conformity would simplify the upcoming tax season for Arizonans, but that conformity without other tax cuts would be a mistake because of how much money it would cost Arizona taxpayers. They pegged the number at $300 million, though they didn’t cite a source for that figure.
“Gov. Doug Ducey and the Legislature should quickly follow the lead of lawmakers in other states, who decided to return the new revenue they received as an unintended consequence of the Tax Cuts and Jobs Act to individual taxpayers, households, and employers in the form of pro-growth tax reform,” Mesnard and Norquist wrote.
The op-ed noted that Iowa reduced individual income tax rates, while Georgia doubled its standard deduction and dropped corporate and marginal individual rates. Mesnard and Norquist argued that Arizona would be more economically competitive if it reduced its own tax rates, emphasizing that Nevada and Texas don’t have income taxes, while Colorado has a lower corporate income tax rate than Arizona.
“Federal tax reform has presented a unique opportunity to make Arizona a more attractive place to live, invest and do business without making any changes to the state budget or negatively impacting state revenues,” they wrote.
Ducey is open to future tax cuts funded by revenue from conformity, but wants to use the money it would generate for the 2018 tax year to put about $200 million into the state’s rainy day fund. Mesnard is vehemently opposed to the proposal.
Despite the timing of the op-ed, Mesnard, R-Chandler, said it wasn’t intended as a shot across Ducey’s bow on tax conformity. He told the Arizona Mirror that he submitted the op-ed to the Republic in early December, while he was travelling in Europe and before the Ducey administration floated its plans for conformity.
“If I’d have been aiming it at the governor as a shot across the bow I would have specifically talked about the rainy day fund,” Mesnard said. “But at the time we wrote this, a special session was still plausible and there wasn’t any specificity from the Governor’s Office on the rainy day fund idea.”
Mesnard unsuccessfully urged Ducey to call a special session so the Legislature could tackle the issue before the start of 2019. He said he didn’t mention the proposed special session in the op-ed because he understood that it might not run for a while.
Norquist is most well known for the anti-tax increase pledge his organization asks officeholders and candidates across the country to sign. Mesnard said Norquist reached out to him after hearing from people in Arizona that Ducey seemed hesitant to support a conformity plan that wouldn’t require Arizonans to pay more in taxes.