A provision of the recent federal COVID-19 relief package that bars states from using the money to lower taxes won’t shelve a major income tax cut that Gov. Doug Ducey and GOP lawmakers are planning, the governor said on Monday.
At a press conference to discuss this year’s wildfire season, Ducey opined on tax cut provision of the American Rescue Plan Act, a $1.9 trillion relief plan that Congress passed earlier this month. Though the bill says states can’t use the money “to either directly or indirectly offset a reduction in the net tax revenue,” Ducey says that isn’t applicable to the plans that he announced in his State of the State address.
“If you read the guidance carefully, as we have, you can do what you were going to do at the state level and still spend those dollars. So, we will not have policy in the state of Arizona that forgoes those dollars. But we can make our tax code more competitive. And that’s in the legislature right now, and something of course that I committed to when I ran in 2014,” Ducey said at the press conference.
Arizona is slated to receive at least $12.2 billion from the relief package, according to legislative budget analysts.
Republican lawmakers have also said they won’t be deterred by the anti-tax cut provision in the federal legislation, and some have questioned whether it’s constitutional. Attorney General Mark Brnovich and 20 other Republican attorneys general have asked U.S. Treasury Secretary Janet Yellen for guidance on the matter by Tuesday. Ohio’s attorney general has already sued the Biden administration over the tax cut provision.
In his State of the State address in January, Ducey announced plans to cut income taxes by $600 million, which would follow through on the pledge he made during his first campaign for governor in 2014 to reduce income taxes to as close to zero as possible. GOP lawmakers are looking to cut income taxes by $1 billion. The House of Representatives, Senate and governor’s office are negotiating what the cuts will ultimately look like.
If a state cuts taxes in a way that violates the American Rescue Plan Act, it could forfeit federal funds equal to the amount of revenue it loses through the tax reduction. But it doesn’t appear that Ducey and lawmakers’ plans would even indirectly be funded through federal dollars.
The tax cuts being proposed by the governor and lawmakers aren’t dependent on federal money in any way. They’re based on projected revenue surpluses that predate the relief plan, and the plans have been underway since before Congress passed the legislation with that provision.