Dubbed
the “InvestInEd” measure, the initiative purported to target this massive tax
hike on the only the wealthiest of Arizonans. Ultimately proponent’s efforts
were tanked when the Arizona
Supreme Court ruled the ballot language was misleading and
confusing.
But they
are back. And this time they have
redrafted their measure to try to head off the arguments used in 2018 to defeat
the proposal.
Instead
of nearly doubling the tax rate at the top of Arizona’s income tax brackets, the new
measure imposes a 3.5 percent surcharge on taxable income above
$250,000 for a single person or $500,000 for married persons. The surcharge
would create a new top rate of 9 percent, giving Arizona one of the highest
income tax rates in the nation. And this won’t be a tax just on the
wealthy—small businesses that file as LLC and S-Corps would be affected by this
measure as well.
Proponents
estimate $940 Million to be generated from the initiative, making it the
largest income tax increase in State history. That of course assumes that the
measure generates as much revenue as proponents anticipate. The truth is, their figures are not derived
from a dynamic model that takes into account market and behavior changes as a
result of the new tax scheme. The reality is that investors, job creators and
more affluent Arizona taxpayers won’t stick around long enough to pay this
ridiculous surcharge. They will find a
way to not pay it.
Luckily
for Arizona’s economy and future, InvestInEd proponents face much stiffer
political headwinds than they had in 2018.
Far from the sea of
red storming the capitol two years ago which then fueled the
grassroots and volunteer efforts for InvestInEd 1.0, this year’s proposal was
launched with tepid
participation of around 100 people. And major political
figures, such as Governor Doug Ducey, remain staunchly opposed.
It also
doesn’t help that recent K-12 funding increases have undermined any serious
discussion on the need of a tax increase. Far from the teacher pay narratives
spun by the unions, Arizona
actually ranks 16th in the country with the average teacher
making over $55,000 a year. The salary
increases are due to the legislature and Governor Ducey pumping over $1Billion
in new dollars into the K-12 system.
Furthermore,
the state does not need to raise additional taxes to continue to invest
in education. Arizona has an over
$1Billion surplus (as they did in 2019) and have in fact already
raised several taxes. Given the
tremendous gains our
K-12 system is making in academic benchmarks, Arizona citizens should
be more than skeptical of proposals to hike taxes at this point.
Without
total synergy among the education crowd AND a generous injection of National
Education Association dollars to support the 2020 InvestInEd proposal,
prospects for it qualifying for the ballot, let alone passing, are anything but
certain.
They weren’t the only ones
fighting against this radical measure. Organizations and individuals from
around the state banded together to fight Prop 127 and the permanent economic
harm it would inflict on homeowners and business owners.
After learning about how Steyer’s
renewable energy plan would lead to skyrocketing utility bills, voters
overwhelmingly rejected
Proposition 127 by a 2 to 1 margin (32-68 percent). The message was
clear: RATEPAYERS DO NOT WANT ENERGY MANDATES.
Fewer than 18 months later it
appears that both Steyer and APS have decided to ignore the will of the voters.
Late last month APS announced they are rolling out, with full
support of the environmental left and Tom Steyer, the “Arizona
Green New Deal”. Under their proposal, APS will shift to 100 percent carbon
free generation by 2050, regardless of cost, reliability or whether their
customers support the concept.
Just to explain how radical this
plan is, the Arizona Green New Deal is more extreme than the 25 percent
renewable energy mandate Steyer pitched to voters in 2018. Only this time
voters won’t get an opportunity to reject the deal since APS can implement it unilaterally
and their monopoly rate base has nowhere else to go.
APS will attempt to explain their
flip flop by saying that this is only “aspirational” and that it helps protect
and promote nuclear power in Arizona. This is utter nonsense. Make no
mistake: unless this plan is stopped it will be adopted by the Arizona
Corporation Commission and will become a mandate.
And if the Palo Verde Generating
Station is really under threat from the likes of Tom Steyer or other
anti-nuclear environmentalists, then the better approach is to pass and promote
laws to preserve the energy source. The fix should NEVER BE to saddle their
captive ratepayers with all the risk of their Green New Deal, especially given
the lousy
track record of government selecting which
companies/industries in the renewable energy industry to support.
While ratepayers will be saddled
with no options and escalating utility bills, APS will be immune from the
negative impacts. As a regulated corporate utility, they are constitutionally
guaranteed a rate of return, which will be provided by the Arizona Corporation
Commission in generous profitable increments over the next 30 years.
If this is the path that existing
monopoly utility providers want to pursue, then ratepayers deserve the right to
opt out. For years there has been discussions on enacting utility
competition in Arizona and giving customers the option to
choose their own energy provider. Now is the time to press forward on this
issue. If APS wants to impose higher costs through their Green New Deal, then
they should be required to compete with other utilities offering alternative
plans.
Additionally, ratepayers need to
have legal protections to ensure that cheap, reliable energy takes precedent
over unpopular partisan politics. Since the current structure is not putting
ratepayers first, systemic reforms are necessary.
The Club urges both the
Corporation Commission and the Legislature to honor the will of the voters and
take action against the Arizona Green New Deal. Don’t let bullies like Tom
Steyer dictate energy policy in our state.
This
year HB2732, sponsored by Representative Ben Weninger, is being
sold as both. The Low-Income Housing Tax
Credit (LIHTC)
program is a federal program by which qualified investors are incentivized
to build housing projects for low-income persons with generous income tax
subsidies.
How it works.
It is a
sweetheart
deal for banks, insurance companies and investors. The Arizona program allows for $8 Million a
year of tax credits that can be matched with the subsidies offered through the
federal program. The bills mirror the
federal LIHTC percentages and can be carried over for 5 years.
To
illustrate the business model, a $10 Million project qualifies for 9 percent
tax credits. That is $900,000 a year and
$9 Million over the course of the 10 year carry forward period. Banks sell these credits to other investors
who make up a pool to finance the project.
Some projects are even able to bridge financing gaps with other
government programs. But not only are almost the entire project costs
subsidized by the taxpayer, another $2.2 Million is generated through tax write
offs from real estate losses, depreciation and interest expenses.
This
mechanism is supported by many layers of middlemen who add to the cost of
building these projects. As a result,
the program is lucrative for investors, and very costly for the taxpayers.
How it actually doesn’t work.
For
several years now, this program has been sharply scrutinized by various parties
including the Office of Government Accountability (OGA), think tanks, and the
media.
Much of the gamesmanship of
the program revolves around the submittal of construction costs which the OGA
determined varied drastically from state to state and project to project.
The average LIHTC project cost $218,000, yet
only $9,400 of it was the cost of the land; a ratio observably out of whack.
This is par for the course for a program which in the past has been scandalized
by construction kick-back schemes. The
program has been gamed in other ways.
Just last Fall, Wells Fargo made an over $2 Billion settlement with the Department of Justice for nation-wide collusion to devalue the tax credits. Hundreds of millions of dollars have been
siphoned from the program in these ways resulting in far fewer units being
built for the poor at a great cost to taxpayers.
Neither
at the state nor federal level, did necessary oversight exist to ferret out
inflated budget projections and fraud.
In fact, only seven of the 56 agencies around the country awarding these
credits has been audited in the program’s 30-year history.
And yet the feds continue to soak increasing dollars into the program each year, though the actual number of units being constructed dwindles. According to an investigation conducted by NPR, the $9 Billion LIHTC program is producing fewer units than it did 20 years ago yet taxpayers are paying 66 percent more in tax credits. Aside from the fraud, another factor likely being the many syndicators, consultants, and financiers that work in their margins into the complicated process.
What else this reveals.
The OGA’s report on the vast cost variations in building state to state, reveal another critically important truth. Jurisdictions with onerous and restrictive land use regulations drive the high costs to build there. These incentive programs in fact reward states that cause their own affordable housing crises and fleece taxpayers all at the same time. A report issued by the National Association of Homebuilders and the National Multifamily Housing Council estimated that 32 percent of multifamily costs were attributable to regulation.
In fact, studies of housing prices have shown costs have directly increased with land use regulations. As a result, federal housing affordability spending is almost two times higher in the most regulated states than the least regulated states.
There are better ways.
It is
long-time policymakers address affordable housing for American families by
addressing the root of the problem and tailoring assistance programs that serve
those in poverty, not only those seeking a profit.
Under the new federal administration, director of Housing and
Urban Development (HUD) Ben Carson, has looked to do just that. Instead of continuing
to reward bad behavior by local governments, his agency has discussed attaching
HUD grants to regulatory reforms proven to lower housing costs. HUD’s position that they won’t continue to
aid in the affordable housing problem by subsidizing it – is also a signal to
states that they should look to curb their own contributions to the problem
instead of simply seeking more federal handouts. In Arizona, one of those factors is the
residential rental tax – which disproportionately impacts low-income
individuals.
Reforming
land regs is a long-term endeavor and won’t solve the immediate need for
low-income people in unaffordable housing markets.
But
there are better ways to structure programs than the convoluted LIHTC
program. One such proposal with
bipartisan support are “Housing Choice Vouchers (HCV).” Instead of
incentivizing profiteers to supply housing – HCVs empower individuals and
families to access housing in places they desire to live.
This
approach allows low-income families to move to higher income places which often
gives them access to better jobs and school districts and affords children of
low-income families’ greater opportunities to succeed. Because the LIHTC programs provide greater
incentives for building in designated areas of greater poverty, it has the direct effect of actually concentrating poverty and segregating poor people.
Arizona lawmakers should help poor people and
protect taxpayers.
The
expansion of this 34-year-old failed federal program in Arizona would be a big
mistake. The bill being pedaled this year is not being backed by advocates for
the poor; but by those who stand to gain the most – insurance companies,
investors and banks. If lawmakers truly
care about the poor – and the taxpayer – they will resoundingly reject HB2732.
Today the Arizona Free
Enterprise Club released a new study evaluating the cost of Low-Income Housing
Tax Credits (LIHTC) in Arizona and Washington and how LIHTC have performed
compared to other government backed housing affordability programs. The review determined
that in both states, LIHTC have led to a significant increase in the cost of development
and construction when compared to similar market rate housing.
In his analysis, economist Everett
Stamm determined that a “lack of oversight and transparency, requirements to
pay higher wages and inadequate cost control measures all attribute to the
higher development costs” associated with LIHTC. Stamm concludes that even if proper reforms
were implemented with LIHTC, other tenant-based programs, such as the Housing
Choice Voucher Program, are better suited to provide housing for low income residents
than LIHTC.
Evidence that LIHTC drive up
construction costs and fail to keep housing affordable add to the list of
concerns that exist with the program. “There is ample evidence, both from
the Government Accountability Office and the US Department of Justice, that the
Low-Income Housing tax Credit Program has been rampant with fraud and other
criminal activity and lacks basic oversight to determine any tangible benefits,”
said Scot Mussi, President of the Arizona Free Enterprise Club.
“If the legislature is
serious about addressing housing affordability, they should look at options
that are tenant based and that drive down the cost of construction. Low income
housing tax credits accomplish exactly the opposite,” Mussi
continued.
In Arizona, there is
currently a
proposal to spend $8 Million to expand the LIHTC program, which is being
aggressively pushed by developers and investors that will financially benefit
from the tax credits.
The complete study by the Club on LIHTC can be viewed by clicking HERE.
For years Democrats have
complained that virtually every government program in Arizona is underfunded
because of all the “draconian” tax cuts that have occurred. Given that most
national rankings show Arizona is middle of the pack among
states when it comes to overall tax burden on individuals and businesses, it is
difficult to see how they reach this conclusion.
Nevertheless, there has been a
lot of discussion in political circles and in the media about Democrats winning
majorities in the State House and Senate, meaning they might have a chance to
implement their tax hike agenda.
Just how much do Democrats plan
to increase taxes if they win control of the State Legislature?
The Answer: $5.73 BILLION
DOLLARS!
This three-year budget total includes a wide range of tax increases that have been actively supported by Democrat leadership and their caucus. Through votes taken at the legislature, bills introduced by the caucus and tax increases proposed in their own budget plan, the entire Democrat tax hike agenda has been put on display for the public to see. And it would mean billions in new taxes that would cripple the state’s economy and send businesses and families fleeing to other states. Tax Increases the Dems would LOVE to implement include:
VLT Registration Fee
Last year Democrats unanimously voted against ending the VLT registration fee, a widely despised fee that has generated fury among the vehicle owning public. If it were up to the Democrats, the fee would still be in place, and likely would be increased since the amount of the fee wasn’t capped (the Arizona Department of Transportation director had sole authority to annually set the amount of the fee). Taxpayers are lucky Democrats didn’t get their way on this one.
Online Sales Tax
Last year Republicans approved a
plan to allow for the taxing of remote online sellers, with the intention of
providing an offset to prevent a net tax increase. Democrats fiercely opposed
the plan, speaking out against the proposal and made the bizarre argument that
somehow providing offsets was a “tax cut.” They even presented an alternative
budget proposal that included keeping all of the money from the
tax increase, which totals at least $900 million dollars over three years.
Conformity Income Tax Increase
Similar to taxing online sales,
Democrats were fierce in their opposition to any plan that didn’t include the
government keeping the $300 Million in annual revenue generated from the
Conformity Tax hike. They introduced their own conformity legislation and
proposed in their own budget
plan
keeping the money generated from the tax increase. Even the media, which is
normally sympathetic toward government keeping more of our money, didn’t bite
on the Democrat spin and consistently reported this as a significant tax increase.
Income Tax Hikes on
Individuals, Businesses and Entrepreneurs
The Democrats don’t want to stop
with just one income tax increase. In addition to the conformity income tax
hike, they also are pushing a
massive tax increase similar to Invest in Ed from 2018 to double the
individual income tax rate to 9 percent ($2.82 Billion), eliminating
inflationary adjustments on deductions ($9 Million), increasing taxes
on corporate businesses by imposing
a moratorium on all tax credits ($390 Million) and raising
taxes on capital gains ($12.2 Million).
Arizona Can’t Afford the
Dems Radical Tax Agenda
This is a mind blowing portfolio
of record breaking tax hikes, and it doesn’t even include Democrat leadership’s
support for increasing
the gas tax, increasing the insurance
premium tax and imposing a minimum
tax
on every corporation regardless of size or if they are even profitable.
Democrats will attempt to run
away from this record, hoping voters won’t take a closer look at their plan to
enact California-level tax rates that will turn Arizona permanently blue. Republicans
shouldn’t let them—taxpayers need to know about the radical left turn Democrats
have in store for the state if they are in charge.
As the Club highlighted last week, through a combination of economic growth and tax and fee increases, Arizona is likely to have a budget surplus this year approaching $1 Billion dollars. Adding to this figure was news announced on Friday that the state expects to collect an additional $95 Million from the VLT registration fee increase that went into effect in 2019.
Knowledge that Arizona is collecting around $1.3 Billion from VLT fees, online sales and income tax hikes over the next 3 years is likely an irritating fact to lawmakers looking to spend the surplus, but it is a reality that cannot be ignored.
A plan needs to be crafted to start rolling back these tax increases, one that is designed to maximize growth, create jobs, prioritize families and build on the success of the Tax Cuts and Jobs Act that has been an undeniable success during President Trump’s first term.
We will
find out today what Governor Ducey wants to do on the tax front, a
package that his aides have been hinting will involve ‘significant’ tax relief.
If his proposal is similar in size and
scope to the one
released by Sen. Javan Mesnard last Thursday, it would be a
good first step toward rolling back the tax hikes in a pro-growth fashion.
Given the details of the plan,
the Free Enterprise Club currently is in support of Senator Mesnard’s Arizona
Tax Cuts and Jobs Act, which intends to return $400M to taxpayers over 3 Years.
Some of the key provisions in his
plan include:
Full Repeal of VLT Registration
Fee on Dec. 31, 2020
Though lawmakers
were successful last year in convincing Governor Ducey to repeal the VLT
registration fee in the budget, it came with an expiration date
of July 2021. That means an additional $373M is being paid by taxpayers to pad
the surplus and create capacity for more spending. Ending the fee at the end of
this year would return nearly $100M back to taxpayers and also address the
fairness issue of penalizing vehicle owners that need to register their
vehicles in the first 6 months of 2021 (while not assessing the same fee to
people over the last 6 months of the year).
Property Tax Relief
Included in Senator Mesnard’s
plan is a proposal to cut the state equalization property tax rate and reduce
Arizona’s uncompetitive business property assessment ratio rate to 17 percent. This is a sensible idea that addresses two
issues:
Since
most of the surplus money being taken from taxpayers is from the VLT fee and Online
Sales Tax increases, giving it back through a property tax cut is a
fair approach that is broad-based and equitable. Additionally, housing
affordability has been a major issue raised over the last year. Cutting property taxes is a much more
intelligent way to reduce the cost of housing than the myriad of tax
credit/subsidy programs being floated at the capitol by politically
connected developers mainly interested in enriching themselves.
Arizona’
business property taxes are uncompetitive compared to other states. Due to the state’s high Class 1 business assessment
ratio of 18 percent (residential is at 10 percent), there is consistent
pressure on small and medium sized employers that pay nearly double the amount as
everyone else when property taxes (or valuations) increase. Reducing the assessment ratio without shifting
the cost onto other taxpayers is a smart policy that should be embraced.
Capital Gains Tax Reduction
If
the goal is to encourage both investors and investment to relocate to Arizona,
there is no better approach than a broad-based cut in the capital gains tax
rate. Senator Mesnard’s plan would reduce the state rate to 50 percent of the
personal income tax rate, a similar formula used by the Federal Government to
tax capital gains. The cost of this reduction is small, yet the benefits will
be substantial. Additionally, supporting a cap gains tax cut would hopefully
end the parade of millions being given away in targeted
tax credits and subsidies to wealthy investors and
politically connected businesses to encourage them to invest in our state.
168K Full Expensing for
Businesses
Though full
expensing is not a tax cut, it is one of the most
important tax reforms that the legislature can pass to incentivize
investment and manufacturing in the state.
This tax change would allow companies that purchase machinery and other
large assets to fully expense the equipment in the first year, rather than
depreciating the asset over several years.
The result is a reduced initial
cost for purchasing equipment, making it easier for businesses to expand
operations. And since these businesses
will no longer receive the tax depreciation on the equipment, what looks like a
cost to the state in the first year is revenue positive by year four. It’s not often that policymakers have an
opportunity to pass pro-growth tax policy that is revenue neutral. Full expensing provides that opportunity.
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