Tax Increase Education

David Lujan of the Arizona Center for Economic Progress, left at podium, speaks at a kickoff event for an education initiative (Invest in Ed) that would raise taxes to fund schools at the state Capitol in Phoenix Monday, Feb. 17, 2020.

(The Center Square) – A 77.7 percent income tax increase on Arizona's highest wage earners "would wreak economic harm upon Arizonans of all income levels in every industry in the state," a new analysis of the proposal by the Goldwater Institute finds.

Voters will decide the fate of Proposition 208, also known as Invest in Ed, in November. The proposition would increase the current top income tax rate from 4.5 percent to 8.0 percent. The 3.5 percentage point hike would be assessed on individuals who earn more the $250,000 annually and couples who file jointly who make more than $500,000.

Supporters such as teacher unions say Prop 208, if approved at the polls, would affect only the highest wage earners in the state. It is expected to generate about $940 million a year for increased education spending.

But the Goldwater Institute report, written by director of Education Policy Matt Beienburg and senior fellow Jim Rounds, said it will cost a minimum of 124,000 jobs within the first 10 years of implementation.

"Far from affecting only high-income earners, the initiative will jeopardize the employment of thousands of plumbers, dry cleaners, nurses, retail store employees, mechanics, janitors, and others throughout the state," they write.

That's because 50 percent of those impacted by the income tax increase would be small business owners who file state and federal income taxes as individuals rather than corporations.

The estimated job losses would include more than 23,000 in retail and wholesale trade, transportation and utilities industries; more than 17,000 in education and health services; more than 13,000 in manufacturing; and more than 12,000 in leisure and hospitality industries.

"There are several ways the initiative could damage the state’s economy, including reduced attractiveness to businesses locating from other states, slower annual job growth, lower wages for newly created jobs, and the erosion of the state’s economic base," the report says. "Additionally, the initiative could lead to the exodus of high-income individuals and business owners (including their employees) to more tax-friendly states."

If approved, Arizona would have among the highest income tax rates on its top bracket of workers in the country.

The Arizona Tax Research Association came to a similar conclusion.

"The impact is potentially devastating to Arizona's economy, causing businesses to invest less, and future migrants to choose other states," Sean McCarthy, senior research analyst at Arizona Tax Research Association, told The Center Square last month. "Fifty-eight percent of Arizonans work for small businesses and roughly one-third of them will be impacted."

​Dan McCaleb is the executive editor of The Center Square. He welcomes your comments. Contact Dan at dmccaleb@thecentersquare.com.

Executive Editor

Dan McCaleb is a veteran editor and has worked in journalism for more than 25 years. Most recently, McCaleb served as editorial director of Shaw Media and the top editor of the award-winning Northwest Herald in suburban Chicago.