DECREASED REVENUE IMPAIRS STATE’S LONG-TERM ABILITY TO INVEST IN EDUCATION & PUBLIC HEALTH
Last November, Arizona voters approved Proposition 208 by a wide margin (more than 100,000 votes). Prop 208 implemented a 3.5% income tax surcharge on income above $250,000 for single filers and $500,000 for those filing jointly. The motive behind the initiative was to improve Arizona’s long-standing status as the among the lowest per-pupil spending in the U.S. (Arizona is 48th in per student spending at $8,239).
The surcharge was estimated to raise $800M per year and was supposed to be used for teacher and classroom support staff salaries, teacher mentoring and retention programs, career and technical education programs, and the Arizona Teachers Academy.
Prior to Prop 208, the highest income tax rate in Arizona was 4.5%, which was levied on income above $159,000 (single filing) or $318,000 (joint filing). Based on the then-existing income tax rates, Prop 208 would have increased the tax rate from 4.5% to 8% on income above $250,000 (single filing) or $500,000 (joint filing).
It’s no secret that Governor Ducey was opposed to Proposition 208, as he campaigned against it vigorously and was sorely disappointed when it passed. Once it passed, his attempts to un-do it were two fold: 1) try to get the courts to overturn the measure; and 2) develop an an income tax proposal that would unravel it.
Thus far, the judicial challenge hasn’t yet bore fruit (although the Arizona Supreme Court has yet to rule on a challenge case). However, his legislative effort to unravel Prop 208 was successful last week.
The budget bills that he shepherded through the legislature get rid of all the funds that Prop 208 would have brought in and goes much further… permanently reducing additional revenue for many years to come. Revenue that could have been used to improve K-12 education, public health, affordable housing assistance, and safety net programs like services for persons with developmental disabilities.
The income tax cuts that he will be signing on Monday or Tuesday will be phased-in over the next few years, so the reduced revenue will be a problem for his successor, not himself (he’ll be gone from office in 18 months).
Governor Ducey, his state agency director surrogates, and other wealthy supporters continued to amplify the phrase that “the average tax reduction per year is $300 per person”. Basically, in order to spin and dupe the public, he averaged the total cuts over all filers in order to hide the fact that basically all the tax giveaway is going to his wealthy friends (and himself).
$760M OF THE TAX CUT WILL GO TO THE 9,600 PEOPLE THAT EARN MORE THAN $1M/YEAR. 44% OF ALL THE TAX CUTS WILL GO TO 0.3% OF TAX FILERS.
A previous voter initiative requires a 2/3 vote of the legislature to increase any tax, while cutting taxes requires a simple majority. At some point in the next governor’s term there will likely be a fiscal crisis that will need to be addressed. My fear is that, as was the case in 2011, the proposed solution will be a sales tax increase, which disproportionately falls on lower income folks.