Mayors from across Arizona on Monday signaled their support for passage of a Fiscal Year 2022 state budget that would phase-in a major tax reform designed to sustain Arizona’s economic competitiveness while assuring cities and towns an increased share of state revenues.

In a letter sent to state legislators that was signed by 21 mayors from communities small and large, urban and rural, the mayors wrote, “In addition to ensuring vital resources to local communities, the budget includes important tax reforms that will keep Arizona as a leader in attracting people and jobs. That will inevitably have a positive impact on our communities.”

The announcement by mayors comes as the state comes perilously close to the end of the current fiscal year. Failure to adopt a state budget by June 30 would result in a state government shutdown. With the clock ticking, both legislative chambers on Tuesday morning attempted to act on the new budget bills, but the House session was scuttled after Democrats left the floor, denying the attendance necessary to achieve a quorum. 

Gov. Doug Ducey cheered the news of the mayors’ support, saying in a , “We are pleased to have mayors across the state supporting the state’s budget package. Thank you, to these local leaders!”

Despite attempts earlier this month to move a budget through the legislative process, previous versions could not secure the requisite votes due in part to cities’ concerns that a tax cut would not spark economic growth but would instead shrink their slice of the overall state budget pie.

Groups that advocate for private sector job creators and economic growth earlier this month their support for a budget package that included a significant income tax and commercial property tax reform. 

The latest budget proposal would increase cities’ Urban Revenue Sharing to 18 percent, while phasing in a reduction of the individual income tax that would result in two rates — 2.5 percent and 4.5 percent — once fully implemented. The exact timing of the phase-down would be determined by the pace at which state revenues achieve annual targets.

In addition to the looming end of the fiscal year, lawmakers are also acting with urgency because Arizona could soon have one of the highest individual income tax rates in the country due to last fall’s narrow passage of Proposition 208. That measure’s constitutionality is currently being considered by the state Supreme Court, but if the proposition is allowed to stand, Arizona’s top income tax rate will jump 77.7 percent, going from 4.5 percent up to 8 percent, which is spurring lawmakers to seek ways to mitigate the negative impact on affected filers, which include small businesses. 

An eight percent top income tax rate would give Arizona the nation’s ninth-highest rate among states with an individual income tax.

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Arizona’s new high income tax from Proposition 208 is bound to discourage new investment, harm thousands of small businesses, and is unconstitutional, two of the state’s leading economic and legal experts told the real estate community last week. 

While the tax is intended to provide funding for education, it is flawed in many aspects and will hurt education in the long run if measures aren’t taken to mitigate its impacts, said Jim Rounds, an economist and policy analyst who spoke at a virtual breakfast meeting of the nonprofit , the voice of the real estate industry in the metro Phoenix region.

“We’re not debating education funding. We’re talking about the best way to fund education,” Rounds of Rounds Consulting in Tempe told a group of more than 175 attendees. “We want to make sure the gains are bigger than the economic losses.”

Rounds was joined by constitutional attorney Jon Riches of the Goldwater Institute, which is challenging the tax in Maricopa County Superior Court. Riches detailed why the measure is unconstitutional on several fronts. 

Businesses seeking solutions 

Cheryl Lombard, president and CEO of Valley Partnership, said the organization invited the two experts so members could get more information about the controversial measure. 

Lombard said her organization supports a “well educated workforce” as part of its strategic plan and is joining with other business organizations to determine what is the best path moving forward. If Prop. 208 is not going to deliver as promised or is invalidated by the courts, the real estate community wants to know that there is a path forward that businesses can support.

“As a business community, we need to come together as a collective voice, one voice,” she said. 

Highest income tax hike in state history

Proposition 208 almost doubled the marginal income tax rate for individuals who earn $250,000 or more, and couples earning $500,000 or more, from 4.5 to 8.0 percent, a 77.7 percent increase.

It also will impact thousands of small businesses with 500 or fewer employees that file their taxes as individuals, not corporations. Meanwhile, the measure does not affect large companies that file under the corporate tax code.  

At the breakfast meeting, Rounds discussed economic implications while Riches outlined the legal problems with the new tax. 

Here are highlights from each:

What are the economic impacts of Prop. 208?

Rounds, who conducted an analysis of the new tax with the Goldwater Institute, said that any benefits to education will be offset by the damage it will do to the overall economy.   

For one, high income earners are not a stable funding source, he said. Their income flow tends to be more “volatile.”  

To determine the potential impact of the ballot initiative, the analysts calculated the damage including job losses, suppressed wage growth, dampened business recruitment, and harm to the state’s economic base. 

Among the key findings: 

A minimum of $2.4 billion in state and local tax revenues will be lost As more businesses fail under the weight of the tax hike, job growth and wages will suffer. A conservative economic modeling of the financial impact indicates that a minimum of $2.4 billion in tax revenues will be lost over the next decade. 

Cuts to social services, public safety, and higher education The new mandate will cause a minimum of $120 million in lost revenues annually to the state’s general fund. Since the proposition requires any decrease in state revenue to be made up from other sources, this will likely put critical services on the chopping block.

Substantial job losses Under the most conservative scenario, job losses will reach a minimum of 124,000 over the course of 10 years. 

A drop in new business expansion The risk to new business attraction and expansion could be as large as a 25 percent reduction.

About half of those affected are small business owners Fifty percent of those whose tax rates are expected to be directly targeted are small business owners. 

Why is the new tax unconstitutional?

Riches, of the Goldwater Institute, discussed the that is being heard in Maricopa County Superior Court. RIches said the measure is flawed constitutionally for a number of reasons including:

Arizona’s constitution requires limitation on school spending The law illegally exempts itself from expenditure limitations for school districts as set forth in the Arizona Constitution.

The proposition violates constitutional requirement The new law violates the state’s constitutional requirement that any new tax must be approved by a two-thirds majority of the legislature, which it did not. 

“No legislation, whether passed by the people or the legislature, can override or supercede the constitution,” Riches said. 

The Goldwater Institute is joined by many others in its legal challenge including the leaders of the Arizona Senate and House, Sen. Karen Fann (R-Prescott) and Rep. Rusty Bowers (R-Mesa); several other Republican legislators; Montie Lee, the owner of Lee Farms; cardiologist Francis Surdakowski; and the Arizona Free Enterprise Club. 

A separate lawsuit also was filed by small business owner Ann Siner, CEO of My Sister’s Closet, and John Buttrick, a retired Superior Court judge and federal magistrate. 

Both experts said Arizona must find a better way to fund education. Legislative leaders in both the Arizona Senate and House are seeking ways to do just that.

Among the solutions under discussion are mitigating the damage from Prop. 208 with tax reforms. No concrete proposals have been introduced but committee chairs in both houses said mitigation is one of their top priorities this year.

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Supporting small businesses still struggling during the pandemic, bolstering the state’s stressed healthcare system, and reducing the influence of out-of-state interests on Arizona’s ballot initiative process are some of the top items on the Arizona ���ϳԹ��� of Commerce and Industry’s wish list for state legislators this year.  

The ���ϳԹ��� revealed these and a host of other policy recommendations Friday during its annual 2021 Legislative Forecast Luncheon. Governor Doug Ducey and legislative leaders also discussed their priorities at the event.

“The health crisis has upended not only the Arizona economy but the entire world in this global pandemic,” said Glenn Hamer, president of the Arizona ���ϳԹ���. “Arizona has weathered this pandemic downturn just about better than any state and, as I’ve said many times, our governor has had just the right touch as we have weathered this once-in-a-century event.

“But some of our industries like tourism and hospitality continue to struggle.”

Hamer praised “heroic” healthcare providers and workers in saving lives. He also decried the violent protest that took place at the nation’s Capitol last Wednesday, resulting in five deaths. 

Almost 900 attend event to hear recommendations from business, lawmakers 

The ���ϳԹ��� and the Arizona Manufacturers Council hold the event every year to release their of policy recommendations as well as hear from the governor and legislative leaders about their priorities for the legislative session that kicks off today.��

Almost 900 people attended the virtual event including dozens of local, state and federal elected officials and business and community leaders. Hamer thanked the sponsor of the event, Cox Communications, for providing the internet infrastructure that has proved essential for thousands of job creators and their employees to continue thriving during one of the “most disruptive economic periods in history.”

Gov. Ducey calls on everyone to prevent the spread   

This year’s short-term priorities were quite different from last year when state leaders grappled with topics like how to keep up with mushrooming population growth and the booming economy. 

This year, ensuring Arizona citizens receive Covid-19 vaccines quickly and bringing the economy to full recovery were top goals of all who spoke. 

Governor Doug Ducey made several remarks about his priorities for the session. Arizonans’ health is the number one priority now. Getting Arizona citizens vaccinated is critical, he said. 

“This is a modern medical miracle that I don’t think anyone could have foreseen in March,” Ducey said about the successful race to get a vaccine for the deadly virus. “Not only do we have the vaccines here from Pfizer and Moderna and others on the way, they are in the state and they are going into people’s arms.”

Ducey, whose 97-year-old grandmother just received her vaccine, said elderly citizens and health care and essential workers will be vaccinated first before the general public at large. 

Government will also focus on helping the underserved populations in tribal and rural areas.

Communicating that this vaccine is safe and effective is another priority to “get us back to normal as quickly as possible,” the governor said.   

Catching students up post pandemic 

As vaccines roll out, providing resources to education to bring children back up to speed in academics is another important step for economic recovery, Ducey said. Jobs and the economy will naturally follow, he said, and “no state is better positioned than the state of Arizona” to succeed.

Other priorities mentioned by the governor were to continue to work to strengthen relations with Mexico, secure public safety and commerce at the border, and champion Arizona tourism and exports on the world stage. 

Legislative leadership focused on covid, education, small businesses, jobs 

The event also featured a “fireside chat” with Senate President Karen Fann, Senate Minority Leader-elect Rebecca Rios, Arizona House Speaker Rusty Bowers, and House Minority Leader-elect Reginald Bolding, who spoke about what their priorities will be for the session. 

All stated that helping citizens and businesses recover from the pandemic is a major goal. Pressing issues include helping the unemployed get back to work, preventing families from being evicted from their homes, attracting and retaining business and industry, supporting education, and funding infrastructure like broadband access and highway construction.  

���ϳԹ��� business agenda unveiled 

At the event, the ���ϳԹ��� and Manufacturers Council provided digital copies of comprehensive policy recommendations for the year. Hundreds of goals with business in mind include topics around education, free trade, civil justice reform, workforce development, the environment and water resources, transportation, tourism and much more. 

Dawn Grove, chair of the ���ϳԹ���’s , said that “first and foremost” priority will be recovery from the pandemic and mitigating the impact from Proposition 208. 

The proposition, adopted in November, created a new tax for top earning individuals and couples, but also is expected to affect tens of thousands of small businesses. These are “pass through” entities, meaning they do not file their income taxes as corporations. Instead, they file under the individual tax code. 

Under the new law, Arizona’s top income tax rate has jumped from thirteenth lowest in the nation to the ninth highest, going from 4.5 to 8 percent, a 78 percent increase, affecting individuals who earn $250,000 and joint filers who earn $500,000. Small business owners who file under the individual tax code are subject to the tax as well. 

The new tax rate could not only hurt Arizona’s small businesses — companies with 500 or fewer employees — but it could dampen investment here, Grove said. 

Among measures being proposed to help the small business community and keep the state a desired location for new industry are reductions in commercial property taxes. 

���ϳԹ��� officials will also be pressing state lawmakers to enact laws to protect employers, cities and towns, and organizations from “predatory” Covid-19 lawsuits. 

Reforming state ballot initiative process another high priority

���ϳԹ��� officials also will be calling on the Legislature to continue to work in a bipartisan manner, pass laws to promote educational excellence in schools, and to reform the state’s ballot initiative law that has been overtaken by out-of-staters, Grove said. 

“Arizona’s propositions, as you know, once passed can almost never be changed even when they cause the opposite of their intended results,” Grove said. “We can and we must do better together. Our second priority will be to advance reforms to protect our initiative system from out-of-state agendas and enhance the credibility of the system. 

“While recent reforms have added some rigor to the citizen initiative system, Arizona’s system remains attractive to out-of-state groups to use our ballot box to implement policies not in Arizona’s best interest, in part because they know it’s so easy to pass here and so hard to change.”

To read the full business agenda from the ���ϳԹ��� and Manufacturer’s Council, go to:  .��

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Restoring the partnership between businesses, workers, teachers associations, and educators is possible, and it must come to fruition for the sake of all Arizonans.

In 2018, Arizona’s education system came under national scrutiny following a statewide teacher strike that left many Arizona students out of school for weeks on end. I was one of those students, as were most of my peers who are now in college.

Lost in the constant criticism of our state’s education system are the great strides everyday citizens, leaders in industry and government, and voters have made in improving K-12 infrastructure.

Direct democracy’s role

Since 2000, voters have passed into law nine propositions via direct popular vote that have impacted the education system. 

Prop 301 – 2000

Proposition 301, passed into law by a 53.5% majority in the year 2000, increased the state sales tax by 6/10ths of one-percent, with revenues directed towards education.

Proposition 301 directly funded increased teacher salaries, a statewide measurement for academic success (known as the AIMS test), a database that would track student performance, character development and safety programs, technology and research initiatives, and more, as well as higher education..

Enjoying broad support from education advocates, public officials, business leaders, and Arizona families, Proposition 301’s success was attributed to its wide-reaching coalitions of support. The business community backed the measure, understanding that a well-educated workforce and money tied to performance metrics was a win-win for Arizona’s economy and education system.

In 2018, the Arizona legislature passed SB 1390, a bipartisan bill that extended Prop. 301 through 2041, as it was set to expire in 2021. This measure was overwhelmingly endorsed by both Republicans and Democrats, and signed into law by Governor Doug Ducey.

Prop 100 – 2010

Proposition 100 created a temporary one-cent sales tax that would contribute to Arizona education. The monies raised from the tax were distributed to support primary and secondary education, health and human services, and public safety.

The Great Recession severely damaged Arizona’s education spending, and Prop. 100 was seen as a path to preventing deeper cuts to education. In May 2013, the proposition expired, and not without its benefits: Arizona had invested more in education as a result of the initiative.

Prop 123 – 2016

Designed to boost Arizona education spending by more than $3.5 billion through 2026/27, Prop. 123 reallocated funds from the state land trust towards education.

Endorsed by Republican Gov. Doug Ducey, Democrat Phoenix Mayor (now Congressman) Greg Stanton, the Navajo Nation and others, including the business community, Proposition 123 was seen as a path to increasing education funds without raising taxes.

Sharon Harper, an Arizona job creator, said, “We can afford the governor’s plan, and it will not weaken the Land Trust’s asset base. Most importantly, the Land Trust will finally begin working as it was intended: to buttress the state’s education funding.”

Gubernatorial and legislative triumph

Elected leaders, and by extension the voters, have also played a large role in promoting our state’s education foundation.

Following the “Red for Ed” strike in 2018, Governor Doug Ducey and Republican majorities in the state House and Senate passed a 20% pay raise for Arizona teachers, as well as additional funds for students, classrooms, and staff. This was all done without raising taxes and while still running a budget surplus thanks to years of fiscal prudence and financial planning.

An impressive list of associations and chambers of commerce, from the Arizona Technology Council, to the Arizona ���ϳԹ���, to the Greater Phoenix ���ϳԹ���, to the Tucson Hispanic ���ϳԹ��� also the proposal.

The pay raise promised to teachers was fully implemented by the start of the 2020 school year.

Building on our progress

Like most things, when it comes to education, Arizonans have a lot to be proud of. Our state continues to make necessary investments and reforms, forging bipartisan coalitions in the public and private arenas. Ultimately, this rich legacy is a testament to the voters’ willingness to invest in our state’s future.

Unfortunately, this track record has been damaged in recent years. 

Prop. 208 passed by a thin margin statewide in 2020, raising income taxes on top-income earners and small businesses by 77.7%. Independent studies indicate that it will hurt Arizona’s economy, dampen education revenue streams, and slow down job growth just as the state is to grow faster than the average state following the Coronacession.

How can we recover this progress? It will take leaders from every side of these debates putting aside their ideological priors and looking at what is best for the whole of Arizona, and most importantly for the next generation of Arizonans.

It will also take acknowledgement that a healthy economy allows the government to spend more as revenues increase. Businesses and schools are not in opposition to one another. A healthy pro-business and pro-worker climate is only possible when education is well-funded and well-run, and vice versa.

Joe Pitts is the program director for the Arizona Junior Fellows Program and executive director of Business Ballot, a project of the Arizona ���ϳԹ��� Foundation.

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Arizona’s state Senate Finance Committee met last week to discuss what the new tax law that resulted from passage of Proposition 208 last month will mean for the state’s economic future and what can be done to offset potential negative consequences. 

While the new tax is meant to tax the wealthy to help fund education, it has an unintended consequence: It will affect tens of thousands of small businesses as well. 

That could have dire consequences for Arizona’s economic health, said the chair of the committee, Senator J.D. Mesnard (R-Chandler), who scheduled the meeting to hear from legislative budget analysts and others on what the impact will be. 

“We don’t want to become a flyover state,” Mesnard said when referring to Arizona’s future economic development prospects.

Arizona now in top 10 for high income tax bracket

Before the new tax was approved, Arizona’s top income tax rate was the 13th lowest in the nation. Now, economists calculate the state has the ninth highest rate in the U.S. 

“Having the ninth highest income tax rate, the 11th highest combined average sales tax rate and high business property tax, you can’t have all those things at the highest end and not have at some point a collapse in economic growth,” said Mesnard, who is working with fellow lawmakers and others to find ways to lessen the impact on business and protect Arizona’s ability to attract investment. 

Initiative almost doubled top tax rate

Under the new tax law, Arizona’s top income tax rate went from from 4.5 to 8 percent – a 78 percent increase for individuals who earn $250,000 and joint filers who earn $500,000.  

Businesses that file under the individual tax code instead of the corporate tax code are also impacted. Corporate filers are not affected by the tax increase. 

Positive and negative impacts of the new tax 

At the committee hearing, Hans Olofsson, longtime chief economist for the Joint Legislative Budget Committee (JLBC), laid out the potential outcomes from the new 3.5 percent surcharge.

Using a static analysis that doesn’t account for potential secondary budgetary impacts, Olofsson estimates that the state will gain about $874 million in tax revenues for education the first year.  

Olofsson said the majority of the taxes, 75 percent, will go to increase teacher and staff salaries. With more money in their pockets, they could spend more and that will push up sales tax collections, he said. 

On the negative side, high income earners could decide to leave the state, Olofsson said. Higher tax rates also could reduce incentives for businesses to locate or expand in Arizona. 

High income tax states end up losers in the long run 

National economist Steven Moore also spoke at the meeting about what happens when states raise their income tax rates.  

Moore and fellow economist and researcher Dr. Arthur Laffer conducted an analysis for the Arizona ���ϳԹ��� of Commerce & Industry to determine just that. The report, “Arizona’s Proposition 208 Loses Jobs and Harms Small Businesses,” analyzed how tax rates have affected states over the past 30 years.  

Almost all states with lower tax rates perform better

According to Moore and Laffer’s research, almost all states with low or zero income tax rates performed better in most economic indicators than those states with high tax rates. 

High tax states saw less revenue for government responsibilities, including education. An analysis of the 11 states that introduced income taxes since the 1960s shows they are at the “very bottom of performance” in not only economic and population growth, but revenue for public services. 

Harsh implications for Arizona

Using data from other states, the economists measured the impact Arizona’s Proposition 208 would likely have on jobs, wages, interstate migration, tax revenue collections, state competitiveness, and small businesses.

They found that all areas would likely suffer, making “Arizona residents poorer and the state’s economy less competitive.” 

Among their findings:

•An estimated 200,000 jobs and about $25.5 billion in personal income would be lost over the  next 10 years. 

• Fifty percent of the tax would be borne by small business owners and operators that typically generate from half to two-thirds of the jobs in a state.  

• Arizona’s economic competitive position among the 50 states would fall from No. 10 to No. 16.

•The state would lose 700,000 people in net in-state migration over just the next decade.

Arizona needs to find ways to keep growing

Glenn Hamer, the president and CEO of the Arizona ���ϳԹ���, also spoke at the meeting to encourage state lawmakers to find a way to fund education without harming the backbone of the state’s economy, small businesses. 

Before Proposition 208, Arizona was among the fastest growing states and “always seemed to be a finalist when it came to big corporate announcements,” Hamer said. 

Now, it will have a much harder time competing with other states that have lower or zero income taxes, he said. 

“This is something that affects all of us,” Hamer said. “We need to figure things out so we can fund education in a sustainable way, but we don’t want to do something to hurt our economy and the incredible growth we’ve all enjoyed and experience with this dramatic change.”

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In 1996, the voters of Arizona passed an initiative measure legalizing the use of medical marijuana in the state. After receiving a 65% green light from voters, the state Legislature repealed the initiative. In a feat of democratic representation, the legislative action taken was rebuked at the polls in 1998 via a “veto referendum” (referred to as Proposition 300) which voided the Legislature’s amendments.

In response to what some viewed as legislative encroachment, Arizona voters carried Proposition 105 in 1998, also known as the Voter Protection Act. This proposition amended the state Constitution to put strict restrictions on the Legislature’s ability to amend or repeal voter-enacted measures. 

The Voter Protection Act also put restrictions on the governor’s ability to make changes to the ballot initiatives once enacted.

When looking at the upcoming election, it’s important to take this into consideration, especially when assessing Proposition 208, better known as the Invest in Education Act. 

Prop 208’s devastating consequences

As of 2020, the highest individual income tax used in Arizona was 4.5% on single filers reporting over $159,000 in income, and $318,000 for joint filers. Prop. 208 proposes an additional 3.5% on income tax filings above $250,000 for single filers and $500,000 for couples, resulting in a new 8% marginal tax rate. 

Proposition 208 affects Arizona small businesses that are organized as pass-through entities, such as sole-proprietorships, partnerships, LLCs, and S corporations. Taxes on these business’ profits are paid via the owner’s personal tax return. 

If Proposition 208 were to pass, it would disproportionately burden Arizona small businesses and deprive an economy in desperate need of oxygen. The Goldwater Institute, a leading Arizona public policy think tank, outlined some of the initiative’s disastrous consequences. Prop. 208 will cost Arizona:

• 124,000 jobs,
• $2.4 billion in local and state revenues,
• small business growth.

These policy worries aside, the utter lack of any possibility of recourse or amendment if Prop. 208 were to pass poses a larger risk yet. Voters and their elected representatives in government have little ability to change course should it pass, no matter its cost on Arizona workers, families, students, and teachers.

Voter Protection Act

Well intentioned, the Voter Protection Act now poses a threat of silencing voters, not protecting them.

Even more troubling, the language of Prop. 208 stipulates that any lost state revenue will result in cuts to other programs. Programs potentially on the chopping block include child protective services, public safety funding, and higher education spending.

Should Proposition 208 pass and negative unintended consequences result, voters won’t be able to work with their elected representatives to address those consequences. Arizonans will be stuck with a state budget that reflects the will of the out-of-state special interests bankrolling the proponents’ campaign, not the needs of the state.

While the Arizona initiative process had its shortcomings prior 1998, we must now look beyond 2020 to come together and stop approaching 21st-century governance with old tools.

Reforms should be considered to the Voter Protection Act. In the meantime, let’s come together and defend our state’s path to recovery. Let’s vote no on 208.

Diego Píña and Taylor Hersch are Junior Fellows at the Arizona ���ϳԹ��� Foundation.

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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 ���ϳԹ��� of Commerce and Industry.��

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Arizona voters are set to flock to the polls — or mail in their ballots — at this year. This surge in voter turnout comes amid a once-in-a-century pandemic that has taken the lives of more than 220,000 Americans and counting, and delivered tremendous economic turmoil.

It took years for the Great Depression to elevate domestic unemployment to near 20%. It took a month for the virus to bring unemployment from record lows hovering around 4% to just short of 20%.

Our economy is struggling, and not just in the abstract. Working- and middle-class folks are suffering as their wages are cut and the bills keep piling up. Students have been affected, too.

As a result of these socioeconomic conditions, students are cracking under the burden of mental, physical, and monetary pressures. USA Today, many students are simply choosing to drop out. This will have a sustained downward effect on future economic productivity and wage growth, something policymakers will have to contend with sooner rather than later.

At a time when Arizona’s economy needs an accelerant, some special interests are attempting to throw cold water on any chances of a recovery.

Here in the state of Arizona, teachers unions and out-of-state activist groups worked hard to get Proposition 208 on the ballot. Drafted in Portland, Oregon, Prop. 208 aims to dramatically increase income taxes and route the revenues to teachers and classrooms. Full of good intentions, 208 fails the test of good policy: results.

The initiative raises Arizona’s top income tax bracket by 77.7% — from 4.5% to 8% — to increase K-12 spending.Only 50% of revenues generated will even make it to classrooms and, even then, the exact allocation is specious since the definition of who’s eligible for funding is incredibly broad. Further, there is not a cent headed directly towards our state universities, save for 3% of revenues assigned to the Arizona Teachers Academy Fund. 

Worse yet, and critical to understanding the negative impacts of the proposition on Arizona students, the additional taxation applies to pass-through entities like LLCs, sole proprietorships, and more. This is primarily how small businesses, which employ 58% of Arizona private sector workers, are organized. Chances are, many of us will go to work for one of these job creators after we graduate.

It’s also not even clear if this tax would increase revenues at all. A published by the renowned Goldwater Institute concluded that Prop. 208 would cause Arizona to lose a “minimum of $2.4 billion in state and local tax revenues”.

In other words, Arizona voters are being asked to kneecap small businesses amid a public health crisis and economic disaster in order to deliver minimal results for students, families, and workers.

As college students, we’re all on board for increasing funding for education and ensuring that students, families, and teachers are fully accounted for. But this isn’t how we do it.

We are entering one of the worst job markets in decades. If Prop. 208 passes then small business will be crushed, wage growth will decline, and career opportunities will shrink. Don’t force us, the next generation of educated Arizonans, to move out of state after graduation. Now is the time to gas up and go, not slam on the brakes.

Sincerely, Arizona students

Joe Pitts is a sophomore at Arizona State University.

Jack Piekarz is a freshman at Northern Arizona University.

Alton Zhang is a sophomore at the University of Arizona.

Abhinav Kolli is a freshman at Duke University, registered to vote in his home state of Arizona.

Justin Groth-Roberts is a junior at Northern Arizona University.

Stephen Matter is a sophomore at Arizona State University.

Alyssa Kihoi is a senior at Arizona State University.

Matthew Martinez is a sophomore at Grand Canyon University.

Clay Robinson is a sophomore at Arizona State University.

Mackenzie Kirby is a senior at Northern Arizona University.

Allen El is a sophomore at the University of Arizona.

Cameron Decker is a sophomore at Arizona State University.

Taylor Hersch is a junior at Arizona State University.

John Touhey is a junior at Northern Arizona University.

Saular Rahimian is a freshman at Arizona State University.

Arjun Rondla is a sophomore at Arizona State University.

Jessica Carpenter is a senior at Arizona State University.

William Noll is a freshman at Arizona State University.

Cooper Ashton is a freshman at Arizona State University.

Ryne Bolick is a freshman at Arizona State University.

Frank Pauls is a freshman at Arizona State University.

Diego Píña is a junior at Arizona State University.

The post Students: Beware Prop 208’s effect on workers and young professionals appeared first on ���ϳԹ���.

The White House’s senior adviser on economic affairs outlined what Arizona businesses can expect if President Donald Trump is re-elected during an event sponsored by the Arizona ���ϳԹ��� of Commerce and Industry and the Arizona Bankers Association last week. 

The nation’s top economic adviser, Larry Kudlow, also urged the business community here to reject Arizona’s Proposition 208 tax increase. 

Pushing Arizona’s income tax rates higher during the pandemic would be foolish timing, said Kudlow, the assistant to the president for economic policy and the director of the National Economic Council. 

“While men and women are returning to work, this is not the time to raise taxes,” said Kudlow,  who leads the coordination of the president’s domestic and global economic policy agenda.

Unwise timing for a hike in income tax rates 

If passed, the so-called “Invest in Ed” proposition will raise the state’s top income tax rate by 77.7 percent, making Arizona’s top income tax rate higher than every other state in the West except California, and one of the ten-highest nationwide. 

“We are coming out of a pandemic contraction. We do not want to be removing money from the economy,” Kudlow warned. 

Higher income tax rates would erode Arizona’s economic edge at a critical time. Right now, Arizona is seen as a desirable location to live, play and do business. 

“Arizona’s personal and business taxes have been moderate down the years. It’s a hot sunbelt state and you don’t want to destroy that story,” he said.  

Data speaks to successes 

During the event, Kudlow detailed Trump’s platform for the economy moving forward, the administration’s successes so far, and efforts to help those still struggling from pandemic disruptions including small businesses, the airline industry and the unemployed. 

One only has to look at data from the U.S. Census Bureau, the U.S. Bureau of Labor Statistics and the Federal Reserve to count the success of the administration’s economic policies over the past four years, he said.

Prior to the pandemic, the standard of living went up for the first time in 20 years, corporate and individual income taxes dropped, and regulatory red tape was reduced, Kudlow said. 

“Inequity fell, poverty fell, unemployment fell, the living standard rose and family income rose,” he said.

Platform forward would be a repeat of past four years 

Basically, the economic plan for the next term would be a repeat of the White House’s guiding principles the past four years, he said. 

“That is, lowering business taxes across the board, lowering individual taxes, and rolling back costly and burdensome regulations,” Kudlow said.

Keeping the economy open and reopening schools while practicing all the lessons learned about masking, social distancing and hygiene is a top priority, he said. 

Also high on the list are investment in new technology advances in energy, particularly in natural gas fracking and horizontal drilling, and the brokering of “better” global trade deals to mimic the success of the new free trade agreement, the United States-Mexico-Canada Agreement (USMCA). 

Good news for full economic recovery 

A rash of economic indicators show that the pandemic recovery will be V-shaped, Kudlow said. A V-shape recovery is characterized by a quick and sustained recovery in measures of economic performance after a sharp economic decline.

Currently, about 80 percent of the economy has recovered and about 50 percent of the unemployed are back to work, he said. Industry sectors like construction, auto sales and manufacturing, and certain retail sectors are seeing “booming” growth. 

Meanwhile, unemployment is dropping. Since the country was shut down at the start of COVID-19, about 14 million workers are back to work, bringing unemployment down to 7.9 percent, he said.

CARES Act helped keep businesses, individuals afloat

Part of the recovery is due to the CARES Act economic stimulus package that was passed by Congress and signed by the president to help the country survive the shutdown.

About 12 million people are still unemployed, he said. Moving forward, Congress is trying to broker another package to help those still struggling. 

“We look at this (package) as being smart and targeted,” Kudlow said. “The other side sees this as a political and ideological wish list.”

Nevertheless, the Republicans and the president are willing to “compromise and put up more dollars to make a deal.”

Meanwhile, $139 billion from the act is still waiting to be allocated. Congressional members need to pass stand-alone bills to appropriate the funding to aid those still in need. 

President “rewards success”

In conclusion, Trump’s economic policies “have benefited those who need it most,” Kudlow said. A vote for Trump will be a vote for America’s recovery. 

“He’s a president who wants to reward success and promote workers. Whereas my friends on the other side seem to always want to punish success.”

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A batter in baseball going 0 for 3 at the plate is the equivalent of a rough day at the office. When a political campaign goes 0 for 3, it’s the equivalent of getting sent down to the minors. 

Based on its three TV ads, the pro-Proposition 208 campaign should start packing its bags. 

If passed, Proposition 208 would take the state’s top individual income tax rate from 4.5% to 8%, a 77.7% increase. 

That’s not some obscure aspect of the initiative buried deep in the text; it’s the initiative’s central provision.  

You wouldn’t know that, though, by watching the proponents’ ads. After several weeks of ads with Hollywood-level production values, not once has the pro-208 campaign disclosed to Arizonans that the initiative is asking voters to approve the biggest permanent tax increase in the state’s history.  

The ads also have yet to mention who the tax increase impacts. It’s not just a handful of wealthy tax filers, but rather the small businesses that power the Arizona economy and that will prove indispensable in Arizona’s post-pandemic economic recovery. After all, small businesses pay their taxes on the individual portion of the tax code. If Proposition 208 passes, their top tax rate will be even higher than Fortune 500 companies.  

Research papers from the Goldwater Institute and the Arizona Tax Research Association have zeroed in on the extent to which Arizona small businesses get walloped by Proposition 208’s tax increase.  

“An analysis of IRS data—supplemented by additional modeling and adjustments to identify only those Arizona taxpayers directly affected by the rate increase— reveals an estimated 90,000 Arizona tax filers who will be affected. Of these, more than 50% would be small business owners,”  by Goldwater’s director of education policy, Matt Beinenburg, and senior fellow Jim Rounds.  

As ATRA’s Sean McCarthy , those small businesses are job creators. “Fifty-eight percent of Arizonans in the private sector work for a business that pays its income taxes via the IIT (individual income tax).” 

A higher tax burden for these small businesses means depriving them of working capital (as  by Republic columnist Bob Robb) that they can use to hire new employees and make the investments in things like machinery and equipment that have led to Arizona having one of the country’s strongest, most dynamic economies and where, pre-pandemic, one of our toughest challenges was finding qualified workers to fill available positions.  

The proponents attempt to argue that the initiative delivers when it comes to accountability, but here again they swing and miss. Proposition 208’s definitions are so expansive as to who’s eligible for funding that there’s no guarantee new dollars will reach teachers. Never mind that Proposition 208 depends on the most volatile segment of state tax revenues. No district would base its budgets or teacher pay contracts on the slice of the tax pie that experiences the wildest fluctuations. As ATRA’s McCarthy details, the first year of the great recession saw revenues in these brackets plunge more than 30% due to cratering business profits. If school districts are banking on these revenues, then they’re in for a wild—and disappointing—ride.   

Proposition 208’s ad makers have a difficult task on their hands. They’re attempting to sell a huge permanent tax increase on small businesses that falls far short of delivering for teachers, and they’re attempting to do so in the middle of a pandemic. If their first three spots are any indication, we can expect more glitzy productions between now and Election Day, but very little straight talk.  

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

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