Arizona voters have unfortunately approved Proposition 208, a measure that was heavily funded by out of state interests and will result in the hardworking taxpayers across the Grand Canyon State facing a permanent $1 billion income tax hike. Legal challenges against Prop. 208 are likely to ensue.
Prop. 208 will impose a new 3.5% “surcharge” on single filers who earn more than $250,000 a year and married couples who earn more than $500,000. This amounts to a whopping 77.7% tax increase, giving Arizona the unwelcome distinction of being home to one of the highest income rates in the country.
“Backers of Prop. 208 have been claiming this massive increase in Arizona’s top marginal individual income tax rate would only impact ‘the rich.’ But that is not true,” wrote Grover Norquist, president of Americans for Tax Reform, in an OpEd that warned of the serious negative consequences of this measure. “Prop. 208 proponents ‘forget’ to mention that small business owners also pay individual income taxes. In reality, around 50% of those whose tax rates would be targeted are small businesses, many of whom have already been struggling from weeks of forced shutdowns to slow the spread of the coronavirus.”
Adding insult to injury, Prop. 208 is also going to jeopardize future jobs and opportunities for Arizonans. “[I]t has been well documented that income tax rates are a key determinant of business location and investment,” wrote Norquist. Prior to Prop. 208, Arizona’s top marginal individual income tax rate of 4.5% was fairly competitive. Once Prop. 208 takes effect, Arizona’s new rate of 8% will rank 10th highest in the country and 2nd highest in the region. “Why would anyone want to invest in Arizona when there are so many other states that would allow them to keep more of their hard-earned money,” said Norquist.
Prop. 208, the so-called “InvestInEd” measure, will devastate Arizona’s economy, while doing nothing to actually improve education. “It would not expand parental choice. It would not call for higher standards. It is basically a slush fund for bureaucrats,” explained Norquist. “Giving all parents and students – regardless of income or address – the ability to choose the school that works best for them is the best way to improve education and education outcomes.”
A glimmer of hope for Arizona taxpayers is that legal challenges are likely to be filed against Prop. 208. There is still a chance that this massive tax increase – the largest in Arizona history – may not take effect.