Arizona’s small business community opposes Prop. 208 in a big way

Business groups across Arizona are opposing Proposition 208, saying the initiative, which seeks to tax certain earners to help fund education, would actually hurt small companies at a time when they are struggling during COVID-19 shutdowns. 

Chad Heinrich

“This is really the wrong time to be even considering something like this,” said Chad Heinrich, Arizona state director for the National Federation of Independent Business (NFIB), who has dubbed the proposition the “small business destruction act.”

What many voters do not realize is that a large number of small businesses in Arizona file under the individual tax code, not as corporate filers, Heinrich said. If approved, those companies could end up slammed with nearly double the tax rate that big corporations pay.

One in five businesses may not survive pandemic

Small businesses already are struggling with thin margins and layoffs during COVID-19, said Jess Roman, CEO of the Arizona Small Business Association (ASBA). 

“There are so many things that small businesses are having to contend with. You’re working like hell to get through this (pandemic) and now you have this new potential cloud coming and you don’t know what the implications are,” he said. 

His members understand the value of education but they feel they are being singled out to shoulder most of the costs, he said. Everyone needs to work together to find a more sensible solution. 

About one in five, or 21 percent, of small business owners report they will have to close their doors if current economic conditions do not improve over the next six months, according to a recent NFIB survey.

Proposition 208 would be a nail in the coffin for many, Heinrich said.

“We’re not talking about big businesses here. We’re talking about mom and pop restaurants, small hotels, the local plumber. These businesses that are all being hit hard by COVID-19,” Heinrich said.

If passed by voters, Proposition 208 would raise Arizona’s top income tax rate from 4.5 percent to 8 percent — a 77.7 percent increase — for individuals who earn over $250,000 and households that earn over $500,000. 

Small business advocates, chambers worried 

Business advocacy groups and chambers of commerce across the Arizona are asking voters to votes “no” to the proposed mandate, including:

  • Arizona Small Business Association
  • Arizona Chapter of the Federation of Independent Business
  • Arizona Lodging & Tourism Association 
  • Arizona Manufacturers Council
  • Southern Arizona Leadership Council
  • Arizona Chapter of the NAIOP Commercial Real Estate Development Association 
  • Arizona Chamber of Commerce & Industry
  • Greater Phoenix Chamber

Reasons why small businesses oppose Prop. 208 

Business groups cite a number of reasons why voters should say “no” to the ballot initiative: 

1. The tax would hurt small businesses 

Small businesses that are individually owned or have a small number of employees that file under the individual tax code could see their tax rate nearly double. That could cause a ripple effect, risking further damage to the state’s economy and jobs. 

Currently, 58 percent of Arizonans in the private sector work for a business that pays its income taxes via the individual income tax, according to a report by the Arizona Tax Research Association (ATRA) and research from the nonpartisan Tax Foundation.

2. Proposition 208 does not adjust for inflation

Unlike current state and federal tax rules, the proposition fails to adjust for inflation, which could sweep more small businesses into higher tax brackets. 

“Without an annual inflation adjustment, Proposition 208 goes from bad to worse,” Heinrich said. “This initiative should be known as ‘The Small Business Destruction Act.’ Ten years from now, $250,000 won’t have the same buying power as it does today, yet more taxpayers will find themselves falling into Proposition 208’s new 8 percent income tax rate.”

3. Voter initiatives are nearly impossible to amend   

If Proposition 208 passes, it will be nearly impossible to alter, even in the case of some unintended negative consequence.

Once passed by voters, it takes a three-fourths vote by the state Legislature to change a voter initiative. Then, any changes made to the act must further its purpose, Heinrich said. So even if lawmakers had the votes to amend the law, it likely would result in costly court challenges. 

4. Undermines Arizona’s pro-business environment

Under the weight of this proposed tax increase, Proposition 208 would punish the enterprising small business owners who create thousands of jobs and power the Arizona economy, Roman said. 

“Despite their claims to the contrary, Proposition 208’s authors demonstrate a shocking lack of understanding of how small business owners ensure sustained operations by reinvesting in their business and storing up working capital,” he said.

Would hurt education, economy in the long run 

Backers of the measure contend that the initiative would restore education funding. What they fail to disclose is that this would amount to “the largest tax increase in Arizona history,” said Glenn Hamer, president and CEO of the Arizona Chamber of Commerce & Industry.  

If passed, Arizona would be in the top 10 highest income tax states in the country, right up there with New York and California, Hamer said. 

“Left out of the script is that Proposition 208’s tax increase on small business would deliver such a shock to state revenues that future education funding would be put at tremendous risk. Also left out is that early childhood, community colleges, and universities are left with peanuts.”

To read testimonials from others who oppose the initiative, including Governor Doug Ducey, go to: No on 208.

Victoria Harker

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