Business Leaders: Doubling the Income Tax Will Harm Job Growth

Business leaders from across the state are sounding the alarm about a proposal to nearly double the income tax on small businesses and repeal tax relief on lower and middle-income earners.

Arizona has become a hub for business development and innovative industries, but local leaders are worried individuals and companies will pass over the Grand Canyon State when looking to relocate or expand.

Since the Great Recession, Arizona emerged as a leading state for job growth. The state had one of the highest national increases in personal income the first quarter of 2018, with increased employment in advanced industries including manufacturing, healthcare and life-sciences, education, and technology. Arizona has also garnered national attention from WalletHub, as one of the top 10 states to start a business. And, for seven years in a row, Arizona has been among the top 10 states for business according to Chief Executive Magazine.

Leaders around the state say this economic momentum and growth is at risk if the effort to double the income tax is successful.

According to Chris Camacho, president and CEO of the Greater Phoenix Economic Council, “the state is reliant on the movement of people to drive our gross domestic product position, meaning people and companies relocating to a market, so anything that will stymie that is going to be problematic for the economy.”

Recent growth has resulted in nearly 100,000 people moving to the Phoenix-metro area annually and an average of more than 40 new companies coming to Arizona each year for the past several years. Camacho attributes this success to the state’s affordability and ease of doing business, as well as a favorable tax and regulatory environment.

There has also been a concerted effort over the past few years to help existing businesses expand in the state, given they account for nearly 80 percent of all new jobs in Arizona. Yet, the proposal will be a blow to small businesses since most file under the individual income tax code.

Many small business owners would see their taxes nearly double with the income tax rate increasing from 4.54 percent to 8 percent for individuals who have a taxable income between $250,000 and $500,00 and for families who generate between $500,000 and $1 million. For individuals and families that make more than $500,000 and $1 million, respectively, the tax rate will jump to 9 percent.

“Arizona is a small business state,” said Mike Huckins, vice president of public affairs for the Greater Phoenix Chamber. “They are the backbone of our economy. So, anything that we do to hamper those efforts, that goes against the pro-growth items that the business community and many at the Legislature have promoted over the last number of years, and puts that continued economic growth in real jeopardy.”  

Companies eyeing Arizona are following the proposal to increase the income tax closely.

“There are dozens of companies that I’ve talked to in the last month that are evaluating what does this mean, what are the implications, and it’s more so about a message to the market,” said Camacho. “Let’s not give them another reason to not choose our state and think more broadly about a broader, comprehensive plan–a better way we should be thinking about investing in education long-term.”

Lorna Romero

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