A little-known citizens initiative that would drastically alter how Arizona collects and spends tax dollars is quietly gaining momentum, causing alarm among state officials.
Known as the Taxpayer Protection Act of 2000, the initiative aims to phase out Arizona's corporate and individual income taxes over the next four years.
Any new taxes proposed to replace the $2.6 billion in lost revenue would have to be approved by voters.
Until recently, the income tax initiative was largely ignored by Arizona policymakers, who apparently didn't think it had much chance of succeeding.
But now that backers have collected nearly half the petition signatures needed to secure a spot on the Nov. 7 general election ballot, state officials, including Gov. Jane Hull, are beginning to worry.
They contend that the initiative would leave a gaping hole in the state budget and force massive cuts in education and social-service programs.
"You would have a complete disaster," said Tom Betlach, Hull's budget director. "There would be no solution other than drastic, dramatic reductions."
Supporters of the drive say they expected such hand-wringng from officials content with the status quo. They say that the four-year phase-out of the income tax would provide plenty of time to prepare for the revenue loss, and that the state could stand to trim some budgetary fat anyway.
"Of course, people who depend on the government for their cash flow are going to be nervous," said Dr. Jeffrey Singer, a Phoenix surgeon who is treasurer of the Taxpayer Protection Alliance, the group pushing the initiative.
"This is very popular. As soon as people hear about it, they line up to sign the petition," Singer said. "This could be the biggest news of the election."
Initiative backers
Officials are especially concerned that the initiative, launched four months ago, is being directed by the same people who successfully pushed two medical marijuana measures through the ballot process, despite organized opposition from Arizona's political establishment.
The income tax initiative also has support from well-known political figures, including former Arizona Secretary of State Richard Mahoney, the group's chairman, and Rep. Matt Salmon, R-Ariz., who advocates eliminating the federal income tax.
The group needs to gather the signatures of 152,643 registered voters by July 6 to qualify the measure for the ballot. It has collected 60,000 signatures, raised $150,000 and is "on target to be on the ballot," said Lori Klein, executive director of the alliance.
If the initiative were successful, Arizona would join seven states that levy no individual income taxes. But Arizona would be the first to repeal an existing income tax, which supporters hope would encourage similar actions in other states, and eventually at the federal level.
"This would be the first nut to crack," Klein said.
Arizona collects $2.6 billion a year in income taxes, accounting for nearly half the state's $6 billion budget. Of that amount, $2.3 billion goes to the state's general fund and $340 million is doled out to cities and towns as revenue-sharing money.
Initiative supporters say the loss of that revenue not only would force state officials to be more frugal, it would give voters more control over how the government collected and spent their money by allowing them to approve or reject tax increases.
'A lot of pork'
"None of us wants to curtail social programs," Klein said. "But there is a lot of pork in there, and lawmakers don't look to cut unless they have to. Once they get addicted to the income tax, it's hard to ween them."
Eliminating the income tax also would make Arizona more attractive to companies looking to relocate their headquarters and to lure high-quality employees, supporters say.
Critics of the initiative contend that the state would be unable to make up the lost revenue without cutting programs. They point out that 93 percent of the money spent by the state goes to education, health and welfare, and public safety programs.
"Anybody can propose cutting a tax, but I have not seen anybody step forward and say which prisoners are going to be released. I have not seen anybody step forward and say which teachers are going to be fired," said Dick Foreman, chairman of the business-backed Arizona Tax Research Association.
The association, which normally supports tax cuts, is opposing the initiative.
Foreman, manager of public affairs and legislative lobbyist for Southwest Gas Corp., said that although eliminating the corporate income tax could help attract more company headquarters to Arizona, he has yet to detect any support for the initiative in the business community.
"Yes, the corporate income tax is high, but I don't think you'll hear any businesses say this is the answer," he said. "This is not a thoughtful, appropriate tax-reform measure, and I don't know of any CEO who is supporting this."
Even some conservative lawmakers who philosophically support eliminating the income tax are shying away from the initiative. The Legislature has trimmed the tax by more than 30 percent over the past nine years, and the state's economy has continued to boom.
But Senate Finance Chairman Scott Bundgaard, R-Glendale, said he has concerns about just how far the state can cut income taxes before such cuts no longer have a positive effect on the economy. He also echoes concerns about drastic program cuts.
"Arizona has a pretty good budget, but it has been growing (too fast)," Bundgaard said. "This is a way of forcing us to prioritize our spending, but to whose detriment?"
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Reach the reporter at Hal.Mattern@ArizonaRepublic.com or at (602) 444-8652.