(The Center Square) – Should Proposition 208, a ballot initiative to hike taxes on higher-earning Arizonans and businesses, and Democratic presidential nominee Joe Biden’s tax proposal, a roll-back of much of the Tax Cuts and Jobs Act, both become a reality, Arizonans would face a significantly higher top tax rate.
Currently, Arizonans pay a top combined marginal tax rate of 43.85%. Jared Walczak, vice president of State Projects at the Tax Foundation, estimates that would rise to 57.34% if both the Biden plan and the Arizona income tax increase were adopted.
“For many years, Arizona policymakers have sought to position the state as a destination for snowbirds and taxpayers fleeing high tax states like California,” Walczak said. “If federal burdens increase, taxpayers' sensitivity to state tax rates may increase as well. Dramatically raising the state's income tax would complicate Arizona's efforts to attract new residents, who have been a consistent source of revenue growth for the state.”
Walczak, along with Janelle Cammenga, wrote an analysis of the Invest in Education ballot initiative, saying the proposal risks Arizona’s reputation as a business and residential migration hotspot.
If enacted, Proposition 208 would impose an additional 3.5% tax on income over $250,000 for single filers and small businesses filing as pass-throughs. That money would be distributed to boost the pay of teachers and other paraprofessional positions as well as retain them.
The Biden campaign’s tax proposal centers around repealing parts of the Tax Cuts and Jobs Act, specifically restoring the top federal income tax rate to 39.6% as well as the gradual phasing out of exemptions based on income levels. That’s known as the Pease Limitations. It would also require those earning more than $1 million in income to treat investment returns as personal income that would be subject to the marginal rates.
Others in Arizona still estimate population and job losses but not nearly as significant.
“Less than 100 tax filers/households are likely to move from Arizona since their taxes have increased as a result of Prop. 208’s impact on high-income earners,” Dave Wells, research director for the Grand Canyon Institute, wrote. “[Ten thousand] jobs might be lost by the 10th year among small businesses impacted by the Initiative’s tax surcharge — this does not take into consideration eventual economic growth impacts the educational investments are estimated to have.”
Arizona, specifically Maricopa County, has led the country in annual population growth in recent years. Home sales this summer, typically a slow season for the state, had risen significantly, causing bidding wars and higher home prices, according to a report from the Arizona Republic.