Friday, September 17, 2021

Proposition 208 picks up steam in Ariz.


A ballot initiative in Arizona, Proposition 208, would increase the marginal tax rate on individuals (or sole proprietorships) making over $250,000 a year from 4.5 to 8 percent.

Arizona’s top marginal rate for state income tax right now, for individuals who make $159,000 a year or more or for married couples who make $318,000 a year or more, is 4.5 percent. Proposition 208, if it passes, will raise the income tax rate to 8 percent on income over $250,000 for individuals and over $500,000 for couples.

The extra money—estimates put it between $820 and $940 million each year but warn about numerous assumptions made to compute the estimates—would be earmarked for schools in the state.

Gov Doug Ducey in 2018 failed to restore education funding cuts made during the Great Recession, and supporters of Proposition 208 say the added funds a successful initiative would send to schools are needed to make up for those cuts.

Although I don’t encourage state-to-state comparisons when it comes to the economy, it is noteworthy that Arizona’s per-pupil expenditures rank in the bottom 10 of all states by just about any measure of spending. The state has the highest student-to-counselor ratio in the nation at more than 900 students per counselor, and only Nevada has a higher average class size than Arizona.

Arizona schools are hurting; the pandemic has made it worse.

But Covid-19 has also made matters worse for business owners, many of whom operate not as corporations but as sole proprietorships. That means their business income counts toward their personal income. Net revenues of $250,000 are small potatoes for small businesses, so it’s safe to assume most small business owners will see their tax rates increase if Proposition 208 is passed.

Taxing wealthy corporations is one thing. Taxing billionaires is in the same boat. But increasing the tax burden on small business owners is a potential red flag for community sustainability, as business owners are the ones who can invest the money in job-creation activities, which potentially brings in additional sales tax revenue for the state as their employees buy stuff. Then, if all goes well (maybe, after Covid), the state can direct the additional sales tax revenue to the schools.

In other words, Proposition 208 isn’t the only way to fix the schools.

I realize that taxing high earners plays well in focus groups and usually at the polls, with Proposition 208 reaching a two-thirds favorability level in a mid-September Monmouth University poll.

And with Arizona’s schools being what they are, it’s hard to argue they don’t need more money to hire more counselors, teachers, and other education professionals.

One problem is that the ballot initiative doesn’t tell schools how to spend the money: they could pay administrators or remodel buildings at the district office, which would have little impact on classrooms, teachers, or students.

Another problem is that some analysts are warning that the initiative wouldn’t bring in as much money as proponents claim, especially since tax revenue is tied to so many other things besides how much money people make.

“An analysis by the Joint Legislative Budget Committee, a nonpartisan office, puts the figure closer to $827 million,” the editors of AZ Central explain. “And even that estimate comes with caveats that could further reduce actual revenue.”

But the initiative has strong backing from teacher unions, whose leaders say it will improve school life for students by providing enough teachers and other staff for class sizes to come down a bit.

“Arizona has one of the worst teacher shortages and some of the largest class sizes in the nation,” says Siman Qaasim, CEO of the Children’s Action Alliance. “This measure will enable us to provide meaningful pay raises for teachers, classroom aides, and other student support staff. This will also enable schools to hire more counselors, school nurses, and other staff who keep students healthy and safe. Investing in public education now is especially important so school staff and administrators can help students recover the learning losses caused by the COVID-19 crisis.”

Enabling something is not the same as doing that thing, though. Each school district in the state is self-governing, and how each board chooses to spend any new revenue generated by this ballot initiative will be up to them to decide when they plan their budgets. It remains to be seen.

If they choose not to spend it in a way that benefits teachers, classrooms, and students, then all Prop 208 does is shuttle money from business owners to school administrators. But if, as I expect, they buy new textbooks, pay for a few more counselors, nurses, and teachers, and make school life better for their students, that’s what taxes are for.

Paul Katula
Paul Katula is the executive editor of the Voxitatis Research Foundation, which publishes this blog. For more information, see the About page.


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