A batter in baseball going 0 for 3 at the plate is the equivalent of a rough day at the office. When a political campaign goes 0 for 3, it’s the equivalent of getting sent down to the minors.
Based on its three TV ads, the pro-Proposition 208 campaign should start packing its bags.
If passed, Proposition 208 would take the state’s top individual income tax rate from 4.5% to 8%, a 77.7% increase.
That’s not some obscure aspect of the initiative buried deep in the text; it’s the initiative’s central provision.
You wouldn’t know that, though, by watching the proponents’ ads. After several weeks of ads with Hollywood-level production values, not once has the pro-208 campaign disclosed to Arizonans that the initiative is asking voters to approve the biggest permanent tax increase in the state’s history.
The ads also have yet to mention who the tax increase impacts. It’s not just a handful of wealthy tax filers, but rather the small businesses that power the Arizona economy and that will prove indispensable in Arizona’s post-pandemic economic recovery. After all, small businesses pay their taxes on the individual portion of the tax code. If Proposition 208 passes, their top tax rate will be even higher than Fortune 500 companies.
Research papers from the Goldwater Institute and the Arizona Tax Research Association have zeroed in on the extent to which Arizona small businesses get walloped by Proposition 208’s tax increase.
“An analysis of IRS data—supplemented by additional modeling and adjustments to identify only those Arizona taxpayers directly affected by the rate increase— reveals an estimated 90,000 Arizona tax filers who will be affected. Of these, more than 50% would be small business owners,” according to the paper by Goldwater’s director of education policy, Matt Beinenburg, and senior fellow Jim Rounds.
As ATRA’s Sean McCarthy writes, those small businesses are job creators. “Fifty-eight percent of Arizonans in the private sector work for a business that pays its income taxes via the IIT (individual income tax).”
A higher tax burden for these small businesses means depriving them of working capital (as pointed out by Republic columnist Bob Robb) that they can use to hire new employees and make the investments in things like machinery and equipment that have led to Arizona having one of the country’s strongest, most dynamic economies and where, pre-pandemic, one of our toughest challenges was finding qualified workers to fill available positions.
The proponents attempt to argue that the initiative delivers when it comes to accountability, but here again they swing and miss. Proposition 208’s definitions are so expansive as to who’s eligible for funding that there’s no guarantee new dollars will reach teachers. Never mind that Proposition 208 depends on the most volatile segment of state tax revenues. No district would base its budgets or teacher pay contracts on the slice of the tax pie that experiences the wildest fluctuations. As ATRA’s McCarthy details, the first year of the great recession saw revenues in these brackets plunge more than 30% due to cratering business profits. If school districts are banking on these revenues, then they’re in for a wild—and disappointing—ride.
Proposition 208’s ad makers have a difficult task on their hands. They’re attempting to sell a huge permanent tax increase on small businesses that falls far short of delivering for teachers, and they’re attempting to do so in the middle of a pandemic. If their first three spots are any indication, we can expect more glitzy productions between now and Election Day, but very little straight talk.
Glenn Hamer is president and CEO of the Arizona Chamber of Commerce and Industry.