Contrary to the claims by the governor and many legislators, we did have a substantial Arizona income tax increase for the 2018 tax year.
Since there is disagreement, in order to determine whether we had a tax increase or not, it is best to apply good old-fashioned Clintonesque logic by stating that it depends on the definition of the phrase “tax increase.”
If we adhere to the text and the spirit of our state constitution as amended by Proposition 108 (1992), then we did not have a tax increase for 2018. This would have required that a bill be introduced, run through committees, obtain 2/3 majority votes in both chambers, and be signed by the governor. None of that happened. Therefore, no tax increase.
On the other hand, if we apply common sense and logic, we come up with a different picture. Here is how it goes:
IF the 2018 income was equal to the 2017 income
AND the 2018 tax amount was greater than the 2017 tax amount
THEN there was a tax increase in 2018
This is exactly what happened. Because of ingenious semantic playing, the governor did not increase our taxes in the same manner that Clinton did not have sex with that woman. Those of us who pay attention to that sort of thing are keenly aware that we did indeed have a tax increase that wiped out most of the relief we obtained via Trump’s Tax Cut and Jobs Act of 2017. Without getting into the details, which have been adequately explained elsewhere, the Trump tax cuts created a higher income figure to determine the AZ income tax liability, resulting in a state tax increase and a windfall higher tax revenue for the state, unless corrections were made. These corrections were fought tooth and nail by our governor.
An examination of the chain of events associated with this debacle clearly indicates that this windfall tax hike was not accidental, but both premeditated and orchestrated. As early as January 2018 we knew that this tax increase was going to happen unless we took positive steps to avert it. Yet, the whole 2018 legislative session went by and the issue was conveniently ignored. Finally, in January, 2019, Mesnard (LD17) introduced senate bill SB1143, which would have fixed the problem by making the necessary corrections retroactive to January 1, 2018. That bill cleared both chambers along party lines, except for Republican Brophy-McGee (LD28) who voted against it. Then the governor was quick to veto it, using very interesting language in his veto letter. He wrote that HB1143 was the wrong policy and that bills that have fiscal impact should be considered as part of the budget discussions. First off, how is it bad policy for a Republican governor to allow tax payers to keep more of what they earn? Second, we routinely consider bills with fiscal impact throughout the legislative session, and finally, why was this not considered during the 2018 budget discussions?
Going forward, we are being told that we have established a revenue neutral conformity plan for taxable year 2019 and beyond, but we are already hearing from some CPA’s that this plan is not as revenue neutral as we are led to believe. Time will tell, but what is very clear is that we will never recover the Trump tax cuts for taxable year 2018 that we lost to the AZ Department of Revenue.
REFERENCES – LINKS
Mesnard bill SB1143: SB1143 – conformity; internal revenue code; rates
Governor’s veto letter: https://www.azleg.gov/govlettr/54leg/1r/sb1143.pdf
Governor’s budget plan: https://azgovernor.gov/FY20Budget