Arizona Is Now a High Tax State Thanks to Prop 208

Arizona Is Now a High Tax State Thanks to Prop 208

Do you remember when people were flocking to Arizona? When new employers, entrepreneurs, and families found our state attractive because of its low taxes?

It wasn’t that long ago. Here’s just one example from 2019, when the state’s top marginal tax rate was 4.50%— one of the most competitive in the country!

But all of that has changed thanks to Proposition 208.

With the passage of this disastrous piece of legislation in which voters were misled, Arizona’s new rate was raised dramatically to 8%. This gives Arizona the ninth highest small business tax rate in the nation! Of course, the teacher unions and out of state special interest groups behind Proposition 208 said this wouldn’t happen—that it would NOT tax small businesses. Clearly that was a lie.

And now, with Arizona already having the 11th highest sales tax rate and the 20th highest business property tax rate in the country, we are officially a high tax state for small business.

That’s not exactly something we’d want to advertise to those who may consider moving here. After all, a recent study from the Cato Institute found that American citizens are leaving high tax states for lower tax states. Certainly, that’s not much of a surprise. But Arizona used to be ones of the desirable states to move to because of its low taxes. Not anymore.

And while the media and the Left continue to push the myth that the people of Arizona are undertaxed, just ask small business owners their experience since Proposition 208 passed. If the taxes were so low, then why are many of them picking up and leaving the state?

The fact is that Arizona has now joined the ranks of other high tax states that have experienced decades of decline. You probably know some of them: Illinois, New York, California. Each of these states are dealing with high taxes, distressed economies, and people fleeing to other states to find greener pastures.

Just look at California, where an estimated 13,000 businesses left between 2009 and 2016. In fact, during the economic boom years in 2018 and 2019, 765 commercial facilities left the “Golden State.”

But this begs the question: If the economy was booming throughout the country, why did these businesses leave? The answer is quite simple: high taxes.

Is that what we want here in Arizona? We certainly hope not.

But thanks to Proposition 208, Arizona has now lost the tax-competitive advantage that once made it so special. And that means we can expect other nearby states like Nevada, Utah, Colorado, and Texas to have the upper hand when it comes to attracting small businesses and creating new jobs.

It’s time for our state legislature to take swift, aggressive action to fix this problem. Proposition 208 has made Arizona a high tax state, crushed small businesses, and done irreparable harm to the state’s competitiveness. And if our legislature doesn’t do something soon, we’ll end up in an endless cycle of decline—just like our neighbors in California.

You Can Make a Difference

If we don’t act soon, Arizona will soon look like other high tax states in rapid decline. Find out what you can do to undo the damage being caused by Proposition 208.

Prop 208 Voters Were Deceived—Now Small Businesses Are Paying the Price

Prop 208 Voters Were Deceived—Now Small Businesses Are Paying the Price

They said it wouldn’t happen. They said that Proposition 208 wouldn’t affect the Arizona economy or small businesses. But here we are, just two weeks into the new year, and small businesses are already seeing the effects of a disastrous income tax increase.

How could this be? 

After all, Andrea Nemecek, the state director for #INVESTinED, declared that Proposition 208 would NOT tax small businesses. Not that it was unlikely. Not that it may not. She stated that Prop 208 would NOT tax small businesses.

This proclamation was included in her ballot argument submitted on behalf of the YES campaign to the Arizona 2020 General Election Publicity Pamphlet. And it was the very first argument that appeared in the voter guide. Just look at Question 4 on page 137.

4. How much does this tax small businesses?

Answer: Zero. $0.00. Nothing. This initiative ONLY applies to personal income, not business income. This is worth repeating: There are no business-tax increases. This surcharge only applies to personal income.

But Ms. Nemecek wasn’t alone. Every major funder, advocate, and organization behind Prop 208 pushed this same deceitful narrative. Take David Lujan, for example. Mr. Lujan is the director of the Arizona Center for Economic Progress, a co-author of Prop 208. Back in September, he told the Phoenix New Times, “The argument that our opponents make is that this is going to tax small business owners. And that’s completely false.”

This talking point was repeated far and wide, including by #INVESTinED, who tweeted the same exact quote.

So, if this were true. If it is “false” that small business is taxed under Prop 208, then Ms. Nemecek, Mr. Lujan, and the out-of-state special interests that bankrolled this massive tax hike should explain why small businesses are already leaving the state due to Prop 208.

Just look at Landmark Recovery, a business headquartered in Scottsdale. Its owner, Matthew Boyle, told ABC15 last month that his business is packing up and heading to Nashville, Tennessee. Why are they leaving? Because Prop 208 will crush his small business.

Another local favorite, My Sister’s Closet, has filed a lawsuit against Prop 208 because of the damage it will cause her small business.

More businesses are sure to follow. And who can blame them?

It’s bad enough that many of these businesses are still trying to recover from the effects of COVID-19. Now, they’re being hammered by a tax they were told didn’t affect them.

So, who stands to be most affected by Prop 208? The people of Arizona.

report from the Goldwater Institute estimates a minimum of 124,000 jobs lost within 10 years of Prop 208 going into effect along with $2.4 billion lost in state and local tax revenue.

But #INVESTinED got what they wanted. Prop 208 passed. And now the people of Arizona are stuck dealing with the fall out of a campaign that was less about education and more about deception.

You Can Make a Difference

If we don’t act soon, Arizona will soon look like other high tax states in rapid decline. Find out what you can do to undo the damage being caused by Proposition 208.

Most States Reject Higher Taxes at the Ballot Box; Arizona is the Lone Exception

Most States Reject Higher Taxes at the Ballot Box; Arizona is the Lone Exception

While public attention has been on the highly charged speculations of the Presidential race, voters in 17 states throughout the country were asked to vote on a variety of tax measures at the ballot box.

The results of these measures were fascinating to say the least, especially the results in typically blue states that are generally favorable to higher taxes.

Despite Biden’s incessant promise to undo Trump’s tax cuts, voters in the country’s most liberal states rebuffed proposals to increase taxes across the board.

It is a well-known fact that these traditionally high-tax states have driven droves of citizens and businesses to lower-tax states such as Arizona, Texas and Utah in the past decade.  Except for measures to increase taxes on marijuana, tobacco, and other drugs, ironically, Arizona is the only state this election to pass the same economically ruinous policies blue states are now trying to undo.

Illinois voted on a measure to eliminate their Constitutional flat income tax system and institute a progressive, soak the rich system, which failed by a wide margin of 10 points.  Opposition to this change was realistically much higher than even 55 percent because in Illinois a Constitutional amendment can be ratified with a simple majority and voters who leave the question blank count as an affirmative for the measure! 

California too, asked voters to increase taxes in the form of removing a cap on property taxes for commercial owners.  Like Arizona’s Prop 208, California’s Proposition 15 would have constituted the largest tax increase in California’s history.  Surprisingly, the measure has failed, leaving intact one of the shelters for California’s businesses. 

Despite an oppositional education lobby and the proponents being outspent almost 2:1, Colorado’s voters passed a REDUCTION in their income tax by a margin of 15 PERCENT!  Colorado’s flat tax system protects taxpayers from class warfare at the ballot box.

Even in Washington state that does not have an income tax – cutting taxes is popular.  The legislature repealed four separate onerous taxes on businesses including a plastic bag tax.  These changes were on voters’ ballots as “advisory votes” which allow the electorate to affirm or oppose tax changes made by the legislature – all were supported by the majority of voters.  One of these measures was a repeal of a tax targeted at the aerospace industry which has threatened to send Boeing out of the evergreen state.  Alaskan voters too saw the wisdom of not killing the golden goose, where voters could have passed a measure to raise a $1Billion by sticking it to the oil industry, but the proposal failed by an almost 30 percent spread.

These results are astounding.  State and local economies have been pounded by the COVID19 shutdowns and there is almost universal acceptance that lower taxes on individuals and businesses will encourage growth and recovery.  The failure of the left’s tax policies is apparent to even the die-hard leftists in the bluest states in the country.  Their uncompetitive tax systems have driven away businesses and job-creators and hamstrung economic growth and they are now changing course. 

After a decade of climbing out of the Great Recession, Arizona has rebuilt its economy by controlling spending, adopting competitive tax policies, and limiting regulatory burdens on businesses.  That has led to thousands of new jobs, a more diversified economy and prosperity in the state which has allowed for over a $1Billion of new sustainable monies to flood the education system. 

Proposition 208 undoes all this progress.  Despite our state’s success story and liberal states trying to adopt our playbook, it looks like Arizona will have to learn the hard way.  

Soak the Rich Income Tax Ballot Initiative is Back

In an attempt to capitalize on the Red4ED strikes in 2018, education advocates and teacher unions organized efforts to put a $700 Million income tax increase on the ballot.

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. 

Swampy D.C Program Rampant With Fraud, Being Pushed in Arizona.

Swampy D.C Program Rampant With Fraud, Being Pushed in Arizona.

Every legislative session, lawmakers are duped by rosy tax credit programs, sold as either robust jobs programs or silver bullets to our social woes. 

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. 

The overarching theme: this is a costly and inefficient program, susceptible to fraud and dubious in its impacts to shelter low-income Americans.

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.

New Study Shows Low Income Housing Tax Credit Program Fails at Delivering Affordable Housing in Arizona

New Study Shows Low Income Housing Tax Credit Program Fails at Delivering Affordable Housing in Arizona

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.