Lorna RomeroA new economic analysis says Proposition 207, the initiative to double the personal income tax rate, will disproportionately impact small business filers.
According to the report conducted by economist Jim Rounds, up to 40,000 small business filers could suddenly see their taxes double should Proposition 207 pass in November. Rounds notes the impact includes losing an estimated 100,000 jobs and reducing state tax collections by up to $3 billion by year 10 of the proposition’s implementation.
Rounds mentions in the report that these 40,000 small business filers “produced nearly 90 percent of all small business taxable income.”
Rounds’ analysis also finds that “the initiative impact[s] far more small businesses than has been described, but specifically targets the small business filers that contribute the most tax revenue to the state.” This revenue currently helps fund education, public safety and other essential government programs.
The following direct small business impacts are highlighted in the report:
- Doubling individual income taxes for certain tax brackets will directly impact a significant portion of small businesses in the state since the owners pay individual income tax and not corporate income tax on their business profits.
- The initiative will result in economic losses that will disproportionately impact smaller, local market operations that provide support to larger corporations and their employees.
- The initiative will make it difficult for business owners to reinvest and expand their own companies.
“Our numbers, while they seem large, are using the most conservative assumptions in the range that we thought was reasonable, and we are still getting a dramatic impact,” Rounds said.
The analysis explains how the initiative will harm the state’s ability to grow the overall employment base. When companies locate in Arizona, they spend money and so do their employees. The majority of that spending is with local businesses, which helps create new jobs.
“Whenever we talk about business expansion, we always talk about the multiplier effect,” Rounds said. “But if that business is leaving, or we are not recruiting as many moving forward, that means small businesses are not going to develop at the same rate. It is a misunderstanding by the advocates about the basics of how a community develops.”
Leaders across the state are sounding the alarm about the findings.
Chad Heinrich, Arizona state director for the National Federation for Independent Business (NFIB), said his organization knew the proposition would have a negative impact on small business, but the new report puts it in context.
“Small business owners knew from the onset how devastating Proposition 207 could be to their businesses,” Heinrich said. “This economic analysis puts it into an even starker reality than we imagined.”
Arizona Chamber of Commerce and Industry President and CEO Glenn Hamer echoed the sentiment.
“If this initiative passes, there will be thousands of small businesses in Arizona paying a state income tax rate nearly sixty percent higher than Fortune 500 companies. It’s stunning. The initiative makes entrepreneurs enemy number 1, and it will make the state openly hostile to small business job creators.”
Guest Contributor
Joseph Kavetsky
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