Disclaimer: The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of this publication.
Elliott Pollack
CEO, Elliott D. Pollack & Company
Proposition 208 will directly and negatively affect commercial real estate activity in Arizona. Demand for real estate comes from population and/or employment growth. Prop. 208 adversely affects growth prospects for the state. This is a negative not only for your business, but, also for your prospects to increase your standard of living.
I am not saying that schools don’t need more funding. What I am saying is that this is not the way to go about it. Not only is 208 inequitable, but it would harm to our competitive position from an economic development standpoint. And it will not raise nearly the funding backers claim. There are better less hurtful ways of funding schools that would not endanger the State from a jobs stand point.
Having a strong economic development program is critical to any state that wants job growth. That is especially critical to a state like Arizona. Without the ability to grow jobs, the economy could stagnate.
Since the end of World War II, Arizona has, for the most part, done very well in attracting new jobs that allowed its residents to have job opportunities that, among other things, has kept the state fiscally sound. This has been the long-term focus of both the public and private sector for decades. And most of the time it has worked out well.
A competitive tax policy is critical to economic development. This includes reasonable, middle of the road, and what most people would consider equitable tax policies for businesses and individuals. These tenets are what have allowed us to do well over the long run and even recover from some poor decisions. But our competitive tax position would be at risk under Arizona Proposition 208 otherwise known as the Invest in Ed tax increase.
Proposition 208 would increase 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%. Today, less than 1% of filers are in this category. They already account for 24% of the income taxes paid.
When relocation specialists put together their data, it will show that Arizona, instead of having a tax rate that was very competitive with other areas of the country, as having an income tax rate higher than all but 8 other states (right now, we have the 11th lowest tax rate out of the 50 states). The 8 states that would still be higher are all considered high tax states. Those states have also had dismal economic development records. This is not a coincidence.
The very real risk here is that any bad publicity because of the tax increase and image change from higher taxes (which would be permanent) could hinder future economic development efforts in the state. The resultant slower growth could offset the increase in revenues projected by the proponents of the act over time.
While the need to spend more on education may be real, this is not the structure to do it. Not only is the concept patently unfair, it is bad public policy. If you want more money for something that affects everyone, then everyone should have skin in the game.
Overall, keep in mind that the state’s income tax is already very progressive. This new tax rate would put the state at a significant competitive disadvantage. According to experts, nearly doubling Arizona’s top marginal rates would make the state’s individual income tax one of the most unbalanced in the nation. Arizona’s top bracket would be moved from 39th to 9th. Decision makers would certainly take notice.
Again, I am not saying that schools do not need more funding or a better funding structure. What I am saying is that this proposition is not a good approach and could significantly harm the state. Doing harm to the state’s economic engine makes no sense. This particular concept for raising significant money for education needs a lot more thought.
Todd Taylor
Managing Director, Wood Partners
Prop 208 conversation definitely has my attention. Prop 208 takes the top marginal income tax rate in Arizona from 4.5% to 8% for both individuals and married couples. This eye-watering 77.7% increase is meant to increase funding for k-12 education. While we all support a healthy thriving k-12 system in Arizona, it’s clear in reading the language of the initiative there is an extraordinary and unacceptable degree of ambiguity regarding where the money goes and for what purpose. To cite one example, the definition of “teacher” is expanded to include roles and jobs that have nothing to do with classroom instruction.
In 2020 it is extremely rare to have the left-leaning AZ Republic and the conservative Goldwater Institute agree on anything, but they both believe Prop 208 deserves a NO vote. The Republic says it is an “extreme proposal with more pitfalls than promise” and “that the juice just isn’t worth the squeeze”.
The Goldwater Institute has an economic analysis that states the economic impact of the “largest permanent tax increase in Arizona history will stagnate economic growth and will not generate the dollars the proponents claim”.
Prop 208 is so concerning national economists like Art Laffer and Stephen Moore are joining the discussion. They recently partnered to write a white paper entitled Arizona’s Proposition 208 Loses Jobs and Harms Small Businesses. The title says it all. It would be an abject disaster. The highlights from the Laffer/Moore analysis:
–50% of the tax would be borne by small business owners and operators and these businesses 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 10th best in the nation to 16th in the widely acclaimed ALEC-Laffer competitiveness index. Arizona would move from having the 13th lowest income tax rate on small businesses to the 9th highest in the nation.
-An estimated 200,000 jobs would be eliminated over 10 years.
-The state would lose 700,000 people in net instate migration over just the next decade.
–Personal income in the state would be reduced by $25.5 billion over the next decade.
-Because of the lost businesses, jobs and taxpaying in-migrants, the measure would at most gain half the static $1 billion in tax revenue gains that proponents of 208 advertise.
-Wage growth would decline in the state and after a decade average household income would be roughly $6,000 lower with the tax hike. It isn’t only the rich that will bear the burden of the tax.
The scourge of prop 208 in embodied in this quote: “Every single state that decided to impose a tax on work and employment at the employee level declined relative to the other 39 states in every single measure. And we aren’t talking about small declines here, either. These states universally declined by upwards of 40% relative to the rest of the nation. Income tax increases are almost always very negative for growth at the state level.”
Though this may be well intentioned, this is the wrong plan at absolutely the wrong time. This is an awful proposition that would do nothing but harm to our great state and must be defeated resoundingly.
NFIB said it well, “Prop 208 is the small business destruction act.” For more information go to www.nopro208az.com and join me in voting NO.
Suzanne Kinney
President & CEO, The Arizona Chapter of NAIOP
Since the Arizona Chapter of NAIOP, the commercial real estate association, came out opposed to Proposition 208 in June, the editorial boards of the Arizona Republic and the Wall Street Journal have both issued scathing articles describing the economic devastation this measure would inflict on our economy if it were to pass.
“It is an extreme proposal with more pitfalls than promise, that deepens the divisions in our society and puts the state’s economy at risk,” according to the editorial board of the Arizona Republic.
A large coalition of business associations representing industries as diverse as agriculture, real estate, mining, trucking, hospitality and many more have joined together to get the truth out on this initiative, which is being funded almost entirely by out-of-state interests that want to use Arizona as a testing ground for their radical ideas.
Notably, most of the funding for Prop. 208 has come from Stand for Children based in Portland, Oregon with additional funding from West Coast labor unions.
In the 2018 election, Arizona narrowly avoided a similarly destructive initiative when the state Supreme Court knocked it off the ballot due to misleading language. Unfortunately, the same proponents came back this year with an even more harmful proposal that the court ruled could appear on the ballot.
NAIOP Arizona strongly supports ensuring our public schools have the resources they need to improve academic outcomes and increase the number of highly-skilled individuals. Our industry relies on economic growth, and a strong education system is an important factor in attracting new businesses to Arizona.
The benefits of a well-educated workforce are broadly shared by our entire community. Unfortunately, the funding mechanism used by this initiative is the exact opposite. It singles out a small sliver of taxpayers under the pretense that most Arizonans would be unaffected. This is misleading.
NAIOP Arizona opposes Prop. 208 because it would damage the competitive tax and economic environment Arizona has worked so hard to build. Of particular concern is the impact this initiative would have on small businesses, most of which file taxes under the individual income tax code.
According to a recent report by national economists and commentators Stephen Moore and Dr. Arthur Laffer, about 50% 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. An estimated 200,000 jobs and about $25.5 billion in personal income would be lost over the next 10 years.
According to the Tax Foundation, the current top income tax rate of 4.5% would rise to 8%, which would move our state to the 10th highest income-tax rate in the country, from 11th lowest today. With more businesses moving out of high-tax states like California, we risk being passed over for states like Nevada and Texas which have zero income tax.
Small businesses are struggling to recover from the devasting impact of COVID-19-related closures and declines in sales. Many have found it necessary to lay off employees and have incurred unanticipated expenses to reengineer their operations to protect the health of customers and remaining workers. The last thing they need now is an increase in taxes.
Simply put, this is not the right time for a tax increase. Instead, this is the time to focus on rebuilding our economy. Arizona was among the leading states in the nation for job growth before the pandemic. Recovery and growth should be our focus. This will lead to improved state revenues and resources for our schools.
