Prop. 208 fundamentally threatens Arizona’s small business recovery

Arizona, like the nation as a whole, is experiencing an uneven recovery from the initial economic impacts of the pandemic. What that means is that some sectors of the economy have rebounded sharply, while others remain in freefall.

At this critical moment, pro-growth policies can help businesses recover and help get the unemployed back to work, but bad policy risks further decimating businesses and jobs. Arizona’s Proposition 208 is perhaps the most misguided policy on the ballot—in any state—this November.  

Small businesses are a critical source of jobs and a vital part of our economic ecosystem, serving as both suppliers and customers to larger organizations. In Arizona, small businesses employ 58 percent of Arizonans in the private sector. In certain sectors, small businesses have an even larger footprint. For example, small firms employ 82 percent of all Arizonans in the construction industry and 62 percent in real estate. They also employ 56 percent of those in food services and accommodation and over 50 percent in professional and business services.  

Some of those sectors, particularly those that rely on customers gathering in-person, have yet to rebound from the pandemic-induced recession. One in five jobs in the accommodation and food services sector that existed in February, for example, are gone today. Moreover, nearly 30,000 professional and business services jobs have disappeared. For Arizona to recover, these small businesses must recover. 

At the same time, we need the small business employers that are doing well to continue growing. Earlier this year, Arizona was ranked fifth in the U.S. for small business employment growth. It is easy to see why when you consider that sectors like construction increased their employment by nearly 40 percent over the last five years.  

But Arizona’s pro-business environment, and the ability of these small businesses to recover and continue to grow, would be fundamentally threatened if Proposition 208 is passed.   

Proposition 208 would increase tax rates on small business that pay taxes through the personal income tax by an astonishing 78 percent. Proponents claim that this will generate nearly $1 billion a year in new taxes to fund schools. But that money has to come from somewhere, and it is most likely going to mean less business investment and fewer new jobs. One conservative estimate places the job loss at 124,000. And let’s not forget, fewer Arizonans working means fewer paying normal income and sales taxes, costing the state and local governments an estimated nearly $2.5 billion over the next decade. 

Even these stark estimates may not tell the full story. Over the past decade, Arizona’s strong economy and quality of life has attracted more than 2 million Americans who moved so that they could call Arizona home. Many came from states that punished small business owners with high tax rates. If Proposition 208 passes, Arizona will move from being a low-tax state to having one of the top-ten-highest tax rates in the nation, alongside the likes of California and New York. Passing Proposition 208 would be the equivalent of rolling up the proverbial welcome mat and closing the door on small business owners.

Proponents of Proposition 208 claim that these tax increases are necessary to ensure a quality education for Arizona students. But that is not true either. Since 2015, Arizona has invested an additional $6.3 billion in K-12 education. Teachers’ salaries have increased by an average 20 percent statewide.  

Since 2000, Arizona has made considerable progress in improving the number of students who are at or above proficiency in math and reading. There is more work to be done, but it will take smart targeted investments that help improve our school system and our economy.  

Proposition 208 isn’t smart or targeted, it will hurt Arizona’s economy and cost the state jobs when we need new job creation the most. It deserves to be defeated.  

Suzanne P. Clark is the president of the U.S. Chamber of Commerce. Glenn Hamer is president and CEO of the Arizona Chamber of Commerce and Industry.