Arizona GOP Goes All-In on Job Killing Tax Hikes

by admin | Apr 29, 2019 | News and Updates, Tax

The Arizona Republican Party has decided to become the party of tax hikes. Yesterday, party Chairwoman Kelli Ward announced that the GOP is officially backing an amendment to the Arizona Constitution to impose a permanent $500 Million dollar sales tax increase for education. This is both bad policy and bad politics that will inflict irreparable harm on our state economy and sales tax code.

Arizona Doesn’t Need to Raise Taxes

As the Club has chronicled for months, there has been a steady drumbeat at the legislature by political insiders to raise taxes for education. This is despite the fact that Arizona is enjoying incredible economic growth and record state revenues.

Since the economic boom began two years ago, state revenues have increased by $1.7 Billion. By comparison, from FY 2009 to FY 2017 state revenue grew by only $1.2 Billion. This rapid revenue growth wasn’t an accident—it is a result of pro-growth reforms by a new administration in Washington, Governor Doug Ducey and a conservative state legislature.

Thanks to the surge in tax receipts, Arizona is in the process of implementing the largest increase in K-12 spending in state history. Over a billion dollars has been injected into schools for teacher pay increases, district additional assistance restoration and new school construction.  

Even with this large increase in education spending, Arizona will have nearly a $1 billion dollar surplus for FY 2020. It proves that the problem was a lack of taxpayers, not tax increases.

Amending Our Constitution to Raise Taxes?

Even if the State GOP believes that a tax hike is needed, the idea that it should be referred to the voters as a constitutional amendment is simply reckless.

If changes to our tax code are deemed necessary, the most sensible approach would be to approve a tax hike through the normal legislative process. Like our Federal Government, Arizona is a republic, which means taxing authority has been vested with the legislature. It is their responsibility to determine the appropriate levels of spending and taxation. Punting the issue to voters is nothing more than a way for politicians to avoid accountability for their actions.

But even if it was determined that the issue must go to the ballot, then it should be a statutory proposal similar to Proposition 301 that was approved nearly twenty years ago. Instead, they want to declare that the state government has a constitutional right to $500 million dollars in sales tax revenue.

Also unclear is whether the language has been vetted to ensure that it won’t lead to unintended consequences. Since this is a constitutional amendment, each word or syllable could face significant judicial scrutiny. 

One such example is the provision to dedicate “twenty percent for maintaining an in-state tuition rate” at our state universities. The drafters of SCR 1001 probably thought this was a politically clever maneuver since voters like the idea of keeping in state tuition low (knowing full well that it is a meaningless mandate).

What is not considered is that “in-state” is not defined in the measure, meaning the courts could decide how this applies to various populations, such as illegal immigrants. The Free Enterprise Club does not have a position on the DACA issue, but it is unclear whether the Arizona GOP considered such issues when endorsing this proposal. Perhaps they trust that judges won’t expand the meaning of new language being written into our constitution.  

What about the Polling?

A common response from the tax hike lobby is that voters overwhelmingly support higher taxes for education. Periodically an education group will trot out a poll showing support for a tax increase, which is then gleefully used by the political establishment to spook lawmakers into believing that they need to get on the “right side” of the issue.

It is true that most public opinion polls have voters saying they would be willing to pay more in taxes for education. But what about the only poll that matters, the one that occurs on election day when people actually vote? Are tax increases passing at the rate that the polling indicates? Let’s take a look:

• At the height of the Red4ED movement in AZ last year, there were several education spending proposals for voters to consider. Most were in the form of bond proposals for school districts. Virtually every bond question had organized support and little opposition on the ballot. Plus, these measures can be sold to voters as a way to get more money for schools “without raising taxes.” Yet nearly half of the education bonds on the ballot were rejected by voters. If support for education funding was as high as the so-called experts claim, they should have been approved at a 9-1 clip.
• In 2018 Colorado voters had their own version of ‘Invest in Ed’ income tax proposal on the ballot in Initiative 73, a “soak the rich” measure that would have raised taxes on the wealthy to put $1.6 billion into education. Supporters of amendment 73 claimed that polling showed voters supported the proposal, and it was heavily backed by the teacher’s union and education community. The measure was overwhelmingly rejected by voters.
• Oregon voters in 2016 had an opportunity to raise taxes on Corporations to pay for early childhood development and K-12 education. Measure 97 was another “free lunch” education spending plan rejected by voters by a wide margin 59-41.
• In 2016 Arizona voters had an opportunity to support more spending for education with no tax increase under Proposition 123. The measure was backed by Governor Ducey, most of the education community, the entire legislature, and faced no real opposition while raising over $4 million dollars. The measure barely passed 51-49.

As the evidence shows, when November rolls around and voters actually have to make a decision, support for tax increases is much lower than what the polling indicates.

Muddled Message Heading into 2020

Now that the AZ GOP has joined the tax hike chorus, it is difficult to know what the party will stand for heading into 2020. Two days ago the AZ GOP posted a tweet declaring that “Tax Cuts Work” and that Republicans believe taxpayers should be able to keep more of their money.  How they plan to reconcile their support for the Trump tax cuts while pushing for tax hikes on the Arizona ballot should make for some entertaining political gymnastics.

It will also be interesting to see how various GOP leaders respond to the new party platform. Governor Doug Ducey has been a consistent and vocal opponent to raising taxes, as well as a vast majority of the Republican legislature who know and understand how tax increases can derail our economic recovery. It is in their best interest to hold firm against this disastrous proposal so voters know that there are at least some elected officials that care about protecting their wallet.

The only reason the Republican Party exists is to help get people elected. By declaring they support SCR 1001, they are sending the message that the only way Republicans can win in 2020 is if they support a massive tax hike at the ballot. We wish them luck on their bold new strategy to try to tax Arizona into prosperity.

Why are Lawmakers Pushing Billions in Tax Hikes Despite Record State Revenues?

by admin | Mar 12, 2019 | News and Updates, Tax

An interesting paradox has developed at the legislature this year. Even though state policymakers are sitting on record tax revenues and a robust Arizona economy, they seem more obsessed with tax increases than ever before.

So far this session there are efforts by Republicans to increase the sales tax by $600 million, raise the gas tax by $750 million, increase income taxes by $200 million, impose taxes on most internet transactions at a cost of over $250 million, retain the $190 Million VLT registration fee and allow political subdivisions to increase sales taxes at the local level. All together it would amount to over $2 billion in tax hikes, a mind-blowing amount that would dwarf any previous tax increase enacted in the State.

The arguments in favor of each of these tax hikes vary, but most surround the topic of additional funding for K-12 schools. This sentiment was understandable. As Arizona stumbled through eight years of job killing policies under the Obama Administration, there was mounting pressure to find new funding sources for education to address the state’s anemic revenue growth.

Fortunately, this is no longer the case. Between the change in administrations in Washington and a consistent focus on pro-growth policies here at home, our economy has taken off. Arizona now has the 3rd fastest growing economy in the country. People are once again flocking to the state, and the Arizona Office of Economic Opportunity projects that 165,000 new jobs will be created by 2020.

This has created a gusher in new tax revenue, most of which is going to K-12. Lawmakers are in the process of funding Governor Ducey’s ‘20by20’ teacher pay plan and restoring District Additional Assistance, which combined will add over $1 Billion in new dollars for public schools by next year.
When fully implemented this will be the largest increase in K-12 funding in state history, and will push per pupil funding so high that lawmakers will be forced to override the education spending limit in the Arizona constitution. This is only the 2nd time in 40 years that such an override vote will be required, a fact that should please everyone that has worried that not enough emphasis has been placed on education funding at the legislature.

And here is the best news yet—even after this large infusion of cash into the classroom, Arizona will still have a projected $1 Billion dollar surplus for FY 2020. It proves that the problem was the need for more taxpayers, not tax hikes.

Yet our political class appears ready to go all-in on job crushing tax increases that will derail Arizona’s economic recovery. While this may excite states like Texas looking to poach our entrepreneurs and job creators, it is bad news for everyone else that wants to keep prosperity here in the state.

Lawmakers instead should be looking to embrace our success, maintain the course and continue to pursue pro-growth ideas that work. Now is not the time to surrender to policies or politics that will move Arizona in the wrong direction.

Proposition 126 Doesn’t Deserve Voter Approval

by admin | Oct 17, 2018 | News and Updates, Tax

Proposition 126 is arguably the most difficult proposition to contend with on the November ballot for conservatives.

On the one hand, the initiative shuts the door on a potential tax grab in the future – taxes on services.   It creates predictability for businesses in the service industry.  And it is finally an example of a citizen’s ballot initiative that curbs taxes rather than doggedly seeks to increase them permanently.

Yet, Governor Ducey, the Maricopa Republican Party and taxpayer watchdog organizations such as Americans for Prosperity and The Arizona Free Enterprise Club are urging their bases to vote ‘No’ on Prop 126.

Why?  Not because they want to see services taxed in the future…

Limitations on Taxation Should be Broad-Based and Inclusive

One of the core arguments in favor of Prop 126 is taxpayers should support any measure that prevents future tax increases. Though this is a laudable goal, the problem with this strategy is that when those limitations are narrowly targeted to benefit a particular group, it leaves everyone else exposed to future tax hikes.

That is the fundamental flaw with this service tax initiative. If stopping future service taxes is a good idea, why not apply the prohibition to the entire tax base? Fortunately, we already have a broad-based solution on the books—Proposition 108. Approved by voters in 1992, this constitutional amendment requires any tax increase by the legislature have a 2/3 vote, including taxes on services. If there is a concern of future tax hikes, then a better approach would be to clarify and expand this taxpayer protection rather than creating a new one.

Prop 126 Impedes Comprehensive Tax Reform and Actually Threatens More Tax Increases

Our organization is unapologetically in favor of eliminating the state’s income tax in the future.  A mountain of research exists demonstrating states without an income tax and with a lower income tax burden consistently economically outperform states with an income tax or a high-income tax burden.

If Prop 126 passes, it increases the likelihood that we will have to become MORE DEPENDENT on income and property taxes in the future.  The reason for this is because our current sales tax base built on taxing goods is shrinking.  When our current tax code was shaped over 80 years ago, services made up only a small fraction of our economy. Now it is approximately half and is expected to become a larger share throughout the next century. If the current sales tax base continues to erode, the only option will be higher taxes on our income and property.

How We Cut Taxes Matters

Just as important as ensuring Arizona has as low a tax burden as is possible, is the method by which we craft tax policy.  Prop 126 is a Constitutional Amendment that if passed by the voters, could not be changed, tweaked or amended without sending it back to the ballot box.

Simply put, rifle-shotting tax policy into Arizona’s constitution is not how a representative government should function.  A more prudent method of governance is the legislative process.  The initiative process gives voters a binary choice: vote for this specific policy or reject it.  The legislative process in contrast, allows for changes, compromises and inherent checks.

Also, although the citizens’ initiative process was contemplated as a separate and coequal branch of the government and a check on the legislative branch – what it is today is far from that.  Rather than initiatives being reflective of the “will of the people” they are banked rolled and run by the machines of special interest groups – Prop 126 is no different.

The Economy Changes, and so Should the Tax Code

The evolution of technology and therefore our economy necessitates changes to our tax code.  The revolution in transportation technology on the horizon will dramatically change our economy.

It is conceivable that as ride sharing becomes so affordable and autonomous cars so efficient, that transportation becomes another great commodity by which people subscribe to a monthly service and opt out of purchasing their own car.

Self-driving cars and affordable ride-sharing services has already created a huge disruption in the automotive industry.  Most cities in Arizona rely heavily on sales tax and of those revenues a huge portion consists of the taxes generated from car sales.

Car ownership is already in decline, especially among younger generations who are opting out of even getting a driver’s license.  Predicting what this phenomenon will look like in 10 years, let alone 50 years is impossible.

Arizonans Could Seriously Regret Passing Prop 126 in the Future. 

Despite its ostensible appeal, the actual benefits to Arizona taxpayers’ if they pass Prop 126 are superficial.  Yet the manifold downsides are deep, long-lasting and may even create the opposite effect of what many voters wish to accomplish with its passage.  For these reasons we encourage voters to take a second look at Prop 126 and Vote No.