PHOENIX, Ariz. — Arizona taxpayers face further uncertainty about how much they owe in 2018 taxes after Gov. Doug Ducey on Friday vetoed a measure backed by Republican lawmakers, intensifying a standoff over how to calculate tax bills even as more than 200,000 people have already filed.
The measure would have cut tax rates to offset higher revenue the state expects to get thanks to a quirk in the 2017 federal tax overhaul. Ducey says any revenue windfall should go to the rainy day fund, saying his fellow Republicans acted hastily and irresponsibly.
“I’m vetoing this bill because it’s bad public policy. It was poorly conceived and was hastily passed, for no good reason,” Ducey said on Twitter. “We’ve been here before: state leaders hastily passed fiscal policy without thinking through the consequences. We need a more thoughtful approach.”
Republicans showed no signs of backing down.
“Today Governor Ducey doubled down on a tax increase,” Rep. Ben Toma, a Peoria Republican who leads the tax committee, said in a statement. “Although I respect the governor, if he wants to sign legislation that increases income tax revenue, he should just say it and not try to have it both ways.”
Arizona uses the federal definition of income as the starting point for calculating state taxes. To make filing simple, lawmakers routinely conform the state’s income calculation to the federal one.
But doing so for the 2018 tax year would result in higher revenue to the state. Republican lawmakers consider that a tax increase and refused to conform without an offsetting tax cut. They passed a bill that lowered all personal income tax rates by 0.11 percentage points.
Ducey’s Department of Revenue issued tax forms that assume the state conforms even though state law currently does not do so. In his tweets, Ducey said he’ll veto “any budget that doesn’t align with these tax forms.” He suggested that he’s open to an offsetting tax increase for future tax years, but he said it makes no sense to retroactively change the tax code for 2018.
The federal tax overhaul capped some tax deductions including those for mortgage interest and state and local taxes. That has the effect of raising Arizona taxable income for some people, mainly those with high enough incomes to reach the cap. Those affected by a higher Arizona tax bill would still get a significantly larger federal tax cut.
“We are not good stewards of our taxpayers by harboring their money,” Rep. Regina Cobb, a Kingman Republican, said Thursday as lawmakers debated the GOP bill.
Democrats said the state has urgent priorities for the money including education, infrastructure and saving for a rainy day. “We desperately need to invest in Arizona,” Democratic Rep. Mitzi Epstein said during Thursday’s debate.