A few final thoughts on Proposition 208 with Election Day just a few days away:

The wrong top 10

If Proposition 208 passes, the state will join a top-10 list on which no state wants to appear.

We’ll end up on the list of states with the highest income tax rates nationwide. Our contemporaries will include the likes of California, New York and New Jersey.

As numerous economists and commentators have pointed out, high-tax states tend to underperform economically, sometimes dramatically so.

A recent by economists Dr. Art Laffer, Stephen Moore and Erwin Antoni compared the economic health of seven states with no income tax against the nine states with the highest income tax rates:

Over the past decade, these seven states have outperformed the nine states with the highest marginal income tax rates, as well as the nation as a whole, in population growth, employment growth, personal income growth and GSP growth. If passed, Arizona would replace Delaware as the ninth highest income tax rate state in America.

In other words, it would join the category of the loser states, not the gaining states.

The proponents of Proposition 208 are attempting to turn a half-century of economic history on its head.

Neighborhood leaders and laggards

The move to the top-10-highest list would make Arizona economically uncompetitive regionally and nationally.

It’s in our own neighborhood where we’d stick out like a sore thumb. Our neighbors Utah, Colorado and New Mexico all have top income tax rates under 5%, but our current 4.5% rate is the lowest. Nevada doesn’t have a state income tax. If Proposition 208 passes we’d rocket up to a top rate of 8%.

Arizona has been in the pole position to attract jobs fleeing California, a state with a top income tax of more than 13%.

As Laffer, Moore and Antoni write, “According to the IRS, since the 1992 tax year (conveniently in the midst of Arizona’s tax cutting spree), Arizona has gained over 201,000 tax returns and almost $12 billion in adjusted gross income (AGI) from California alone.”

If we erase our competitive advantage, it will be far too easy for job creators to pass over Arizona for another friendlier locale.

We’ve got the best house on the block right now. Let’s not trash the place with the largest tax increase in Arizona history.

An accelerant, or sand in the gears?

Arizona’s economy is in the pandemic than most states in the country. Arizona’s labor force is , but we’re still down about 125,000 jobs.

All of our energy should be on ensuring our policies are properly calibrated to win back every single one of those jobs. Proposition 208 does exactly the opposite.

I had the chance recently to with the American Enterprise Institute’s Dr. Michael Strain, one of the most thoughtful minds in fiscal policy today, who discussed how states like Arizona should be approaching their economic policy during this pandemic-induced downturn.

“If you are a state government, if you are the federal government, now is the time to be doing everything you can to support existing businesses, to encourage new businesses to start, to support consumer spending,” Dr. Strain said. “State governments should be doing everything they can do to avoid countercyclical policies, to avoid raising taxes and making it harder for businesses at a time when the economy is weak.”

Proposition 208 ignores that prescription by taking the capital that supports private enterprise out of the private sector, which only prolongs our recovery and exacerbates the struggles of so many small businesses.

No reforms, no results

Also joining my conversation with Dr. Strain was Dr. Rick Hess, AEI’s director of education policy studies. He’s an all-star in the K-12 education reform movement. Count him as a skeptic that Proposition 208, which doesn’t call for any improvement in academic outcomes or educational attainment, will result in a better education for Arizona’s K-12 students. The record of states that spend more on education and simply hope for the best isn’t a good one, he says.

“Can more money help? Of course it can,” Dr. Hess said. “Would I be confident that a big increase in state spending was going to make a big difference for kids with no other attention to reform or improvement? I’d be hugely skeptical.”

Dr. Hess also doesn’t buy the argument proffered by the proponents that Proposition 208 will help solve the teacher shortage.

“That suggests that the opportunity here is part of the initiative would be creating new pathways in the teaching profession, where folks work a 12-month year, are paid like 12-month professionals, rather than simply putting a lot of resources into districts and hoping they get spent,” Hess said.

In case you were wondering, no such new thinking on attracting new entrants to the teaching profession is included in Proposition 208.

“If you’re talking about a package of reforms, thinking differently about teacher retirement benefits and health care, you’re talking about staffing differently, you’re talking about holding schools responsible for serving kids well, then I am wide open to the argument that we ought to be increasing investment in schools,” Hess said. “But the idea that we ought to just be throwing a lot of dollars and saying, ‘Boy, we hope these get spent differently than the money that’s gone before,’ I tend to be real unenthusiastic about that approach.”

Like everything else about Proposition 208, there is no new thinking, there are no new reforms, and there is no increased accountability for outcomes.

Taxpayers, teachers and students all deserve more than Proposition 208’s empty promises. It’s terrible policy with even worse timing.

Glenn Hamer is president and CEO of the Arizona �鶹��ýӳ�� of Commerce and Industry. 

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Leaders from chambers of commerce across Arizona came together Monday night in a “tele-townhall” conducted via video conference to hear from the campaign to defeat Proposition 208 and from renowned Arizona economist Elliott Pollack.

Pollack, who has served as co-editor of the Arizona and Greater Phoenix Blue Chip economic forecasts published by Arizona State University’s Economic Outlook Center, told the audience that the tax initiative to raise the state’s top income tax rate by 77.7% would have grave consequences for the state’s future. 

“For the first time in the 50 years I’ve been a practicing economist in Arizona, it would do something that would hurt economic development in the short- and long-run,” Pollack said. “This is a disaster waiting to happen.” 

If passed, the tax increase initiative would result in Arizona having the country’s ninth-highest income tax rate, only to be exceeded by economic poor performers like California, New York, and New Jersey, which Pollack said are “all economic disasters. And it’s not a coincidence they’re all economic disasters.” 

Pollack says high-tax states give the wrong incentives, shedding people and jobs. 

Terri Kimble, the president and CEO of the Chandler �鶹��ýӳ�� of Commerce, agreed, saying Proposition 208 sends the wrong message to businesses attempting to recruit new talent to Arizona. She cited attracting top-notch health care and manufacturing professionals as an example. 

“If Arizona’s going to continue to lead the healthcare industry and some of the healthcare networks that we have, this is going to be huge,” Kimble said. “And we also see that in the manufacturing sector as well.” 

Kimble said her chamber is especially concerned about the impact on small businesses, which would bear the brunt of the tax increase, a sentiment shared by her counterpart at the Tucson Metro �鶹��ýӳ��, Amber Smith.

“Recovering from COVID-19 and your business trying to survive during this time, here is one more obstacle in trying to survive,” Smith said. “That is really what is most worrisome for these companies is that they are looking at trying to survive next week. How can they survive this for next year?” 

All the speakers at the meeting convened by the Greater Phoenix �鶹��ýӳ�� and the Arizona �鶹��ýӳ�� Executives agreed that they view adequate education funding as essential to the state’s continued economic development, but that Proposition 208 risks far more harm than good.

“This is not about not funding education,” economist Pollack said. “This is about finding the right way to fund education, and this is the wrong way.”

“We view education as an economic development tool to attract high quality companies here,” Kimble said. 

Smith, the president and CEO of the Tucson Metro �鶹��ýӳ��, concurred. 

“Our ‘no’ vote on this is not because we don’t believe in funding education,” she said. “In fact, it’s because we believe in funding education why we are against this.” Smith said the economic harm that would result from the tax increase would jeopardize the future revenues necessary to fund education. 

Todd Sanders, the president and CEO of the Greater Phoenix �鶹��ýӳ��, who served as the meeting host and moderator, asked his counterpart at the Arizona �鶹��ýӳ�� of Commerce & Industry, Glenn Hamer, to respond to criticism that the business community has failed to support education funding. 

“It’s a phony baloney sandwich,” Hamer said, citing the numerous legislative funding initiatives and ballot referrals his and other business groups have supported to increase education funding and improve academic outcomes. “It is a false comment to say that the business community hasn’t supported more dollars into our K-12 system—we have.”

The chairman of the effort to defeat Proposition 208, Jaime Molera, who also chairs the Greater Phoenix �鶹��ýӳ��’s Education & Workforce Development and Public Affairs committees and served as the state superintendent of public instruction and twice as president of the state Board of Education, said he is heartened by his campaign’s broad coalition and urged everyone to vote no.

“You have just a wide array of Arizona businesses that have come together to say, ‘This is not a reasonable plan for education. It’s a horrid plan for our education system, but it’s even worse for our economy.’”

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You’ve likely seen the new television ad from the pro-Proposition 208 campaign. In case you’ve forgotten, Proposition 208 is from 4.5% to 8%–a 77.7% increase.

If you haven’t been following the back and forth over this initiative, you’re forgiven if you didn’t know its central provision amounts to the largest tax increase in Arizona history. The TV ad doesn’t mention it at all.

Instead, viewers are told that the initiative would restore education funding. Left out of the script is that Proposition 208’s tax increase on small business would deliver such a shock to state revenues that future education funding would be put at tremendous risk. Also left out is that early childhood, community colleges, and universities are left with peanuts.

Proponents also fail to inform viewers that they are relying on the section of tax code with the greatest volatility, leaving no guarantee for funding from year to year and no way for school districts to budget with any predictability. If voters want to deliver a boost in teachers’ contractual pay, they won’t get it from Proposition 208.

The ad touts Proposition 208’s accountability requirements, saying that funds would be “voter-protected.” That has nothing to do with accountability. It’s a statement of Arizona’s existing law that makes it virtually impossible to change a voter-passed initiative. There’s a reason for this obfuscation. There’s absolutely no accountability in this initiative. None. Nada. Zip. Zilch.

The ad promises a lot. Political ads often do. What the ad doesn’t do is answer how it will deliver.

A political ad urging passage of an initiative that proposes the largest income tax increase in state history that doesn’t mention the tax increase at all? Unlike the script, that says a lot.

Glenn Hamer is president and CEO of the Arizona �鶹��ýӳ�� of Commerce and Industry

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The vast majority of funding for an initiative campaign to raise income taxes on individuals and small businesses comes from out-of-state unions and interest groups, according to a . 

Since January, InvestInEd, the group backing Proposition 208, has raised more than $4.6 million, however only $31,143 have come from individual contributions made by Arizonans. The remaining 99.3 percent has come from Portland, Oregon-based Stand for Children, the Arizona Education Association, and other special interest groups. 

“Arizona’s initiative process was never intended to be a petri dish for experimental policy cooked up by wealthy special interests from around the country,” Arizona Free Enterprise Club President Scot Mussi said .

In May, InvestInEd as “A grassroots movement to restore K-12 education funding and power our economic recovery.” 

However, the group’s campaign finance records belie the claims of the initiative’s supporters that the campaign enjoys deep Arizona-based grassroots support.

Nearly all pro-Prop. 208 funding coming from special interests

The initiative campaign has raised more than $4.6 million this year from:

·      Stand for Children, Inc. Portland, Oregon-based Stand for Children is funding the majority of the initiative campaign, with over 87 percent of contributions totaling $4,081,574 coming from the group. The vast majority of their contributions have been earmarked for signature collection. The group is active in nine states and previously supported a similar Arizona ballot initiative in 2018 that failed to secure a spot on the ballot. 

·      Arizona Education Association The Arizona Education Association, the National Education Association’s Arizona affiliate, has contributed $456,780. The National Education Association, based in Washington, D.C. is the nation’s largest labor union with over 2.2 million members.

·      Children’s Action Alliance The Children’s Action Alliance, an advocacy group, has contributed more than $85,000 to the ballot initiative.

·      Arizona Individual Contributions Arizonans themselves have contributed $31,143 to the group, only .67 percent of all contributions.

·      Save our Schools Arizona Save our Schools Arizona, another advocacy group, has contributed $23,100. This group in 2018 to Proposition 305. That vote resulted in fewer Arizona families having access to private school choice. The group also to a legislative reform adopted in 2020 allowing Navajo children to access the Empowerment Scholarship Account program to attend a private school on the Navajo Nation on the New Mexico side of the stateline.

History of out-of-state interest groups funding Arizona ballot initiatives

According to Mussi, “Based on the current signature requirements and constitutional protections for paying circulators to collect signatures, it is possible to gather enough signatures to qualify a measure for the ballot for around $2 million dollars.”

Because of this relatively low barrier to entry, Arizona has had multiple ballot initiative efforts funded by out-of-state groups each election year.

In 2016, Arizonans For Fair Wages and Healthy Families used the ballot initiative process to raise Arizona’s minimum wage and impose a new paid leave mandate on Arizona employers. The group from national groups such as the CPD Action, the National Education Association, and the Sixteen Thirty Fund.

Two years later, Clean Energy for a Healthy Arizona— by California billionaire and 2020 presidential candidate Tom Steyer’s NextGen Climate Action—gathered enough signatures for a proposition to require Arizona to use at least 50 percent renewable energy by 2030. Sixty-eight percent of Arizonans voted against it.

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The Arizona Supreme Court has ruled that the “Invest in Ed” ballot initiative will appear on the November ballot. 

The initiative was initially removed from the ballot in July by a Maricopa County Superior Court judge who ruled that the proposition contained a “misleading” 100-word petition summary. The state Supreme Court overturned the lower court’s ruling in Molera v. Hobbs on Wednesday.

“A written opinion will follow,” said Chief Justice Brutinel, delivering the court’s order to reinstate the proposition on the general election ballot.

Opposition swells

Amber Gould, chairwoman of the Invest in Education campaign, , “Today’s ruling by the Arizona Supreme Court keeping Invest in Education on the November ballot is an important victory because it gives millions of Arizona voters the opportunity to put more resources in our schools.”

Arizonans for Great Schools and a Strong Economy, led by former Superintendent of Public Instruction Jaime Molera, has opposed the measure from the beginning. 

Following the ruling on Wednesday, Molera , “Today’s decision is a disappointment. Between now and Election Day we look forward to sharing with voters how damaging this 77.7% income tax increase on small business will be to Arizona’s economy and how it will fall far short of what proponents’ have promised the state’s teachers.”

The opposition group led by Molera has pledged to appeal the decision again, this time “in the court of public opinion.”

Arizona could become one of highest tax states in nation

If passed by voters in November, the initiative would raise Arizona’s top income tax rate by 77.77%. This raise would vault Arizona among the highest income tax brackets in the nation, between Wisconsin and New York.

It would also result in Arizona having the highest income tax bracket among its neighbor states Utah, New Mexico, and Colorado. California beats out Arizona, however. Nevada does not have a state individual income tax.
Arizona Gov. Doug Ducey opposes the initiative, submitted for the publicity pamphlet that is sent to voters before the election that the structure of the initiative would force small business owners to pay “a whopping amount, especially considering that our economy is recovering from recession and high unemployment.”

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A ballot initiative to raise income taxes on certain taxpayers and small businesses is “poorly conceived” and “will not create a sustainable source of funding that is worth the economic malady it will cause” according to a new analysis by a tax watchdog group.

The report by the Arizona Tax Research Association examines Arizona’s journey from a comparatively high-tax state in the 1990s to one that is more competitive today regionally and nationally and the effect the initiative’s passage could have on the state’s prospects for future economic growth.

The report finds that despite Arizona reducing individual income tax rates by 36% since the 1990s, the individual income tax produces far more revenue today than it did in 1991 when adjusted for inflation.

“Adjusted for inflation, Arizona’s individual income tax rate is bringing in 185% more revenue today than it was back in the 90s when the highest rate was 7%,” ATRA Senior Research Analyst Sean McCarthy and the paper’s author said. “The proponents of the tax increase want to establish a new 8% tax bracket, which is 77% higher than the current top rate. We know from history, however, that doing so risks undermining the ability to attract new taxpayers and investment to Arizona.”

The paper cites data indicating that high-wage earners have sought out Arizona as a destination as the state’s tax code has become more attractive.

Between 1991 and today, tax filers with an annual adjusted gross income greater than $500,000 grew nearly 400%. Those filers are now responsible for more than $1 billion in state revenues.

McCarthy rejects the notion that high earners would still choose Arizona if income tax rates were to spike.

“We hear often that New York and California have lots of millionaires despite having high tax rates and that Arizona can do the same,” McCarthy says. “That ignores certain inherent factors those states have that Arizona simply doesn’t. People can move around. Arizona has been a net importer of new residents and tax filers from high-tax states, but that can all change if we join the top-10 list of states with the highest income tax rates.”

Small businesses that are organized as pass-through entities, like partnerships or S Corps, pay their taxes on the individual tax code and will be affected by the proposed tax increase. Citing IRS data, the ATRA report says more than a quarter of Arizona business filers and a large percentage of Arizona’s revenue will be impacted by the increase.

“Businesses make decisions on a number of factors, but a state’s tax environment is near the top of the list,” McCarthy said. “If increased hiring, expansions, and new investments don’t pencil out on a spreadsheet because of a higher tax burden, then Arizona’s economic growth is likely to be severely slowed.”

The paper takes issue with the claim by proponents that Arizona’s K-12 education system will benefit from the tax increase.

“The entire premise of this proposal is incredibly cynical. The proponents aren’t shooting straight with teachers,” McCarthy said. “Not only is the revenue that will come from this tax highly volatile and highly unlikely to deliver what the proponents are promising, but the dollars won’t even go to base K-12 funding.”

McCarthy says advocates for increased education funding would be better served to support policies that will encourage more robust economic growth and, as a result, generate more available resources for the Legislature and governor to appropriate to schools and teacher salaries.

“Lawmakers and the governor have demonstrated that they’re ready and willing to devote more dollars to the education system when the resources are available,” McCarthy said. “This initiative won’t even deliver for teachers the dollars that the 20×2020 teacher pay raise plan and the restoration of additional assistance funds have, but it will certainly create a drag on economic growth.”

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The Superior Court of Maricopa County on Friday removed the “Invest in Education” proposition from the ballot on account of its 100-word description posing a “significant danger of confusion or unfairness to a reasonable Arizona voter.”

Judge Christopher Coury based his on a 2018 decision by the Arizona Supreme Court in that prevented a similar proposition from appearing on the ballot. 

Both the 2018 and 2020 proposals sought massive income tax increases on certain taxpayers, including small businesses.

Massive tax increases

As by �鶹��ýӳ��, the “Invest in Ed” initiative would raise state income taxes on top income earners by 77.7% — moving the top rate from 4.5% to 8%. The tax increase would also affect small businesses organized as  pass-through entities, including sole proprietorships and limited liability companies.

The big tax hike was ruled to be misrepresented by the summary provided to Arizona voters who signed a petition to send the measure to the November ballot.. 

described the tax increase as follows::

“establish[es] a 3.5% surcharge on taxable income above $250,000 annually for single persons or married persons filing separately, and on taxable income above $500,000 annually for married persons filing jointly or head of household filers…”

By failing to alert voters on the impact on certain business entities and the true size of the tax increase, the Court found that the summary was sufficiently “mislead[ing]” to warrant it being removed from the ballot. 

Principal clauses

The initiative was found to completely exclude several key provisions from its voter summary.

The “No Supplant Clause” included in the proposition would lock certain funds towards specific ends, “limit[ing] the power and authority of the Arizona Legislature”, which has direct power over budgeting. Despite curtailing the power of the state House and Senate that is constitutionally assigned, it has no mention in its summary.

Furthermore, the authors of the initiative excluded the “Local Revenue Clause” from the ballot summary.

Responses to Molera v. Hobbs

Arizonans for Great Schools and a Strong Economy, the committee that took the initiative to court, for Arizona voters, students, parents, and taxpayers. 

Jaime Molera, the former state superintendent of public instruction who chairs the opposition committee, stated that “This was the right decision. As we made clear, the tax increase proponents’ entire process, from signature gathering to their 100-word summary, was flawed and misleading.”

The Invest in Ed organization, sponsored by the Arizona Education Association, as “blatantly… political.” 

Invest in Ed has pledged to appeal the ruling to the Arizona Supreme Court. 

Before the proponents announced their decision to appeal, Molera said, “Should the proponents appeal the decision to the state Supreme Court, we anticipate the same outcome.”

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Arizona’s top tax bracket will increase 77.7% according to a summary adopted last Thursday by a legislative panel assessing the effects of the so-called “Invest in Ed” ballot initiative.

The summary approved by Legislative Council, which is comprised of state representatives and senators from each party, explains that the initiative seeks to assess a 3.5 percentage point increase on the current 4.5% tax rate on individual income exceeding $250,000 annually and married couple income exceeding $500,000 annually, resulting in an 8% tax rate on that income, a 77.7% increase over the current rate.

The summary also says that the tax increase will apply to income from small businesses that are organized as pass-through entities, like sole proprietorships and limited liability companies. Such small businesses pay their income taxes on the individual portion of the tax code, not the corporate tax code.

The Legislative Council summary will appear in a pamphlet that is prepared by the Office of the Secretary of State and mailed to voters before the fall election.

“The Legislative Council summary does a good job of explaining for voters just how dramatic a tax increase is being proposed by the tax advocates,” said Jaime Molera, the former state superintendent of public instruction who is chairing the opposition campaign committee Arizonans for Great Schools and a Strong Economy. “If this initiative makes the ballot and passes, Arizona’s top tax rate would be one of the top-10 highest in the nation. That would suppress our ability to grow our economy and would make it more difficult to continue to invest in our schools and teacher salaries. A healthy economy is what made possible the tremendous investments in our schools over the past several years, including the average statewide teacher pay increase of 20% that kicks in this school year.”

Chad Heinrich, the Arizona state director for the National Federation of Independent Business, said his organization was pleased that the Council summary makes clear that small businesses will be impacted by the tax increase.

“Voters deserve to know that Arizona small businesses are facing a huge tax increase if this measure were to pass,” Heinrich said. “The proponents do not discuss their plan’s impact on small business, but thankfully the Legislative Council summary shines a light on the 77.7% jump in the top income tax rate. A tax increase of this size is a bad idea even in a good economy, but in the middle of a pandemic when many small businesses have already closed or are hanging on by a thread, it’s incredibly irresponsible and destructive.”

In addition to the tax increase measure, the Legislative Council considered and adopted summaries of initiatives regarding the legalization of the recreational use of marijuana, criminal justice, and new regulatory mandates on the health care sector.

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