An initiative built on empty promises

Proponents of an initiative to raise the income tax say their plan will generate millions of dollars for K-12 education in Arizona.

They’re wrong. It won’t. The initiative is so terribly flawed, such a mess, so ignorant of basic economics, that not only will it harm Arizona’s economy, but it will hurt the very individuals they claim to want to help: teachers.

Claim #1: The initiative will raise income taxes on individuals earning more than $250,000 annually by just 3.46 percent, while earners of $500,000 or more annually would see an only 4.46 percent income tax increase.

Fact: The proponents need a new calculator or a summer school refresher in computing percentages. There’s a difference between percentage points and percentage increases. The actual percentage increases are 76.21 percent on income over $250,000 and a whopping 98.24 percent on income over $500,000.

The petition argument presented to voters is so wildly misleading that it should be disqualifying.

Claim #2: If passed, the income tax will only affect the wealthy.

Fact: This one’s a whopper. What an enormous tax increase will really do is hit small businesses and the middle class.

Firms that are classified as what are known as passthroughs, like LLCs, file their taxes as part of their individual tax returns and pay the individual rates. That means small businesses will see their highest possible tax rate skyrocket overnight from 4.54 percent to 9 percent. That’s higher than Massachusetts and New York. Big businesses – even the Fortune 500 – would pay a lower tax rate than mom and pop. It’s outrageous.

Just as outrageous is the tax increase’s effect on lower and middle-income taxpayers.

The Legislature in 2015 passed, and Gov. Doug Ducey signed, a bill to protect taxpayers from tax bracket creep. That happens when the cost of living goes up, but the tax brackets aren’t pegged to that inflation. So, when you get a raise at work, instead of feeling any change in wealth, you just get bumped into a new higher tax bracket.

That’s why the Arizona Chamber of Commerce and Industry and other taxpayer advocates supported the bill to index our tax brackets to the cost of living, just like the federal government does, to protect against bracket creep.

But the sloppily drafted income tax initiative completely guts the existing law. Low and midlevel wage earners will once again be subject to the annual backdoor tax increase because of inflation.

Claim #3: If passed, the initiative will raise teacher pay.

By tying teacher pay to highly volatile tax brackets, we would be placing their funding at tremendous risk. Teachers and staff will have no assurance that compensation from this source would be available year to year or business cycle to business cycle. If proponents are looking for a stable funding source, they’ve made a hash of designing one.

The definition of teacher is so broadly expanded under the initiative that any new dollars will be greatly diluted, leaving classroom teachers the losers. The definition of teacher even changes for funds generated by the existing Proposition 301, the .6 percent sales tax for education.

That $700 million the proponents say they’ll generate from the tax hike? Forget it. Economic cycles go up and they go down. Some wealthy taxpayers will domicile in low-tax states like Nevada or Texas, which don’t even have an income tax. And small businesses seeking to avoid the new 9 percent rate could incorporate in order to pay the lower corporate tax rate, meaning there will be even less economic activity to tax. It will create a drag on our overall economy.

For the proponents to promise hundreds of millions in new dollars for teachers is sad. Let’s face it: This was designed by the bureaucrats, for the bureaucrats, and funded by the bureaucrats.

The proponents’ claims are nothing but empty promises. Arizona’s businesses community values teachers. We supported the 20 percent raise in average statewide teacher pay by schoolyear 2020. We supported the 20-year extension of Proposition 301. These policies help teachers, and they are made possible because of a sizzling economy that has allowed job creators to put more Arizonans to work in good-paying jobs. Sending Arizona’s economy into cardiac arrest is no way to help teachers.