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.
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.
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.”
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.
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.
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.
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.
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
are back. And this time they have
redrafted their measure to try to head off the arguments used in 2018 to defeat
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.
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.
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.
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.
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
year HB2732, sponsored by Representative Ben Weninger, is being
sold as both. The Low-Income Housing Tax
program is a federal program by which qualified investors are incentivized
to build housing projects for low-income persons with generous income tax
How it works.
It is a
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.
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.
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.
several years now, this program has been sharply scrutinized by various parties
including the Office of Government Accountability (OGA), think tanks, and the
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.
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.
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
land regs is a long-term endeavor and won’t solve the immediate need for
low-income people in unaffordable housing markets.
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.
Arizona lawmakers should help poor people and
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
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
In Arizona, there is
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.