A few final thoughts on Proposition 208

A few final thoughts on Proposition 208 with Election Day just a few days away:

The wrong top 10

If Proposition 208 passes, the state will join a top-10 list on which no state wants to appear.

We’ll end up on the list of states with the highest income tax rates nationwide. Our contemporaries will include the likes of California, New York and New Jersey.

As numerous economists and commentators have pointed out, high-tax states tend to underperform economically, sometimes dramatically so.

A recent analysis of Proposition 208 by economists Dr. Art Laffer, Stephen Moore and Erwin Antoni compared the economic health of seven states with no income tax against the nine states with the highest income tax rates:

Over the past decade, these seven states have outperformed the nine states with the highest marginal income tax rates, as well as the nation as a whole, in population growth, employment growth, personal income growth and GSP growth. If passed, Arizona would replace Delaware as the ninth highest income tax rate state in America.

In other words, it would join the category of the loser states, not the gaining states.

The proponents of Proposition 208 are attempting to turn a half-century of economic history on its head.

Neighborhood leaders and laggards

The move to the top-10-highest list would make Arizona economically uncompetitive regionally and nationally.

It’s in our own neighborhood where we’d stick out like a sore thumb. Our neighbors Utah, Colorado and New Mexico all have top income tax rates under 5%, but our current 4.5% rate is the lowest. Nevada doesn’t have a state income tax. If Proposition 208 passes we’d rocket up to a top rate of 8%.

Arizona has been in the pole position to attract jobs fleeing California, a state with a top income tax of more than 13%.

As Laffer, Moore and Antoni write, “According to the IRS, since the 1992 tax year (conveniently in the midst of Arizona’s tax cutting spree), Arizona has gained over 201,000 tax returns and almost $12 billion in adjusted gross income (AGI) from California alone.”

If we erase our competitive advantage, it will be far too easy for job creators to pass over Arizona for another friendlier locale.

We’ve got the best house on the block right now. Let’s not trash the place with the largest tax increase in Arizona history.

An accelerant, or sand in the gears?

Arizona’s economy is recovering faster in the pandemic than most states in the country. Arizona’s labor force is growing, but we’re still down about 125,000 jobs.

All of our energy should be on ensuring our policies are properly calibrated to win back every single one of those jobs. Proposition 208 does exactly the opposite.

I had the chance recently to visit with the American Enterprise Institute’s Dr. Michael Strain, one of the most thoughtful minds in fiscal policy today, who discussed how states like Arizona should be approaching their economic policy during this pandemic-induced downturn.

“If you are a state government, if you are the federal government, now is the time to be doing everything you can to support existing businesses, to encourage new businesses to start, to support consumer spending,” Dr. Strain said. “State governments should be doing everything they can do to avoid countercyclical policies, to avoid raising taxes and making it harder for businesses at a time when the economy is weak.”

Proposition 208 ignores that prescription by taking the capital that supports private enterprise out of the private sector, which only prolongs our recovery and exacerbates the struggles of so many small businesses.

No reforms, no results

Also joining my conversation with Dr. Strain was Dr. Rick Hess, AEI’s director of education policy studies. He’s an all-star in the K-12 education reform movement. Count him as a skeptic that Proposition 208, which doesn’t call for any improvement in academic outcomes or educational attainment, will result in a better education for Arizona’s K-12 students. The record of states that spend more on education and simply hope for the best isn’t a good one, he says.

“Can more money help? Of course it can,” Dr. Hess said. “Would I be confident that a big increase in state spending was going to make a big difference for kids with no other attention to reform or improvement? I’d be hugely skeptical.”

Dr. Hess also doesn’t buy the argument proffered by the proponents that Proposition 208 will help solve the teacher shortage.

“That suggests that the opportunity here is part of the initiative would be creating new pathways in the teaching profession, where folks work a 12-month year, are paid like 12-month professionals, rather than simply putting a lot of resources into districts and hoping they get spent,” Hess said.

In case you were wondering, no such new thinking on attracting new entrants to the teaching profession is included in Proposition 208.

“If you’re talking about a package of reforms, thinking differently about teacher retirement benefits and health care, you’re talking about staffing differently, you’re talking about holding schools responsible for serving kids well, then I am wide open to the argument that we ought to be increasing investment in schools,” Hess said. “But the idea that we ought to just be throwing a lot of dollars and saying, ‘Boy, we hope these get spent differently than the money that’s gone before,’ I tend to be real unenthusiastic about that approach.”

Like everything else about Proposition 208, there is no new thinking, there are no new reforms, and there is no increased accountability for outcomes.

Taxpayers, teachers and students all deserve more than Proposition 208’s empty promises. It’s terrible policy with even worse timing.

Glenn Hamer is president and CEO of the Arizona Chamber of Commerce and Industry.