Future Tax Reform Nearly Impossible If Invest in Ed Passes at the Ballot

If voters in November pass an initiative to double the income tax rate on Arizona small businesses, it will make future tax reforms to benefit low and middle-income earners much less likely according to state legislators and small business advocates.

Arizona voters in 1998 passed the Voter Protection Act, which modified the state constitution to prohibit the Legislature from repealing a voter-enacted initiative or referendum and requiring any future modification to achieve a three-fourths vote and to further the intent of the initiative or referendum.

This standard makes it nearly impossible to amend any laws passed at the ballot box, says state Rep. Vince Leach (R-Tucson), who is concerned what passage of the tax hike will mean for future tax reforms attempted by the Legislature.

“What makes this major tax law change even more troubling is that due to the Voter Protection Act that we have in Arizona, it cannot be changed or modified unless it receives a three-fourths majority in the House and Senate, which is virtually impossible” Leach said.

Arizona often conforms with federal tax laws to ensure the state has similar laws on its books. But the initiative to raise the income tax will handcuff the state from reforming, modernizing, simplifying or adjusting the income tax code. Future tax relief, including for low and middle-income earners will likely be off limits.

The negative implications of the ballot measure have attracted greater scrutiny following a recent memo from the non-partisan Legislative Council General Counsel Ken Behringer and Executive Director Michael Braun that revealed the initiative would reverse an existing law that prevents lower and middle-class individuals from paying higher income taxes due to rising inflation.

Chad Heinrich, head of the state’s leading small business advocacy group, took issue with the initiative’s negative impact on future tax reform and its rollback of the existing tax law.

“This poorly written initiative would lock-down state income tax rates, stripping our ability to ever make meaningful changes in the future,” said Heinrich, Arizona state director for the National Federation of Independent Business. “The initiative is written to include both the new higher tax rates and the existing rates, and any changes to it are impossible through legislative means. Further, by removing the annual adjustment for inflation in our current rates, the initiative will result in a tax increase for all taxpayers, including teachers.”

Regarding the dismantling of the tax bracket indexing law, the initiative’s chairman, David Lujan, told Capitol Media Services that he would have his campaign’s attorneys “look at it,” but on July 14 disagreed with the Legislative Council memo, writing on Twitter that his initiative “clearly states that the inflation index will continue to apply to all of the existing tax brackets.”