This will reduce the value of your home.
From Elliott D. Pollack & Company
5111 N. Scottsdale Rd, Suite 202, Scottsdale, AZ 85250 480-423-9200
Having a strong economic development program is critical to any state that wants job growth. That is especially critical to a state like Arizona where population flows will create demand for more jobs. Without the ability to grow jobs, the economy will stagnate and opportunities for individuals to increase their standard of living will diminish. The results would not be pretty.
Since the end of World War II, Arizona has, for the most part, done very well in attracting new jobs that allowed its residents to have job opportunities that, among other things, has kept the state fiscally sound. This has been the long-term focus of both the public and private sector for decades. And most of the time it has worked out well.
There have been some stumbles along the way. Between 1988-1992, the state had a Governor impeached, a scandal that rocked the legislature, suffered the loss of a Super Bowl due to inaction on implementing the Martin Luther King holiday, had real estate issues including the Keating incident and the Keating 5 and had almost every Savings & Loan business in the state go under. The national publicity from these hurt economic development in the state for several years. Fortunately, none of these things changed the basic structure of the state and, thus, the state recovered and flourished. In 2007-2008, the state was one of the epicenters of the national real estate crisis. In addition, the negative effects of passing one of the strictest anti-illegal immigration legislation measures (SB 1070) in the U.S. gave the state an unnecessary black eye. But, again, nothing gave a signal that the state's pro-business policies changed. Again, some time passed, recovery took place, and we flourished again.
A competitive tax policy is critical to economic development. This includes reasonable, middle of the road, and what most people would consider equitable tax policies for businesses and individuals. These tenets have what has allowed us to do well for decades and even recover from some poor decisions. But our competitive tax position would be at risk under Arizona Proposition 208 otherwise known as the Invest in Ed tax increase.
Proposition 208 would increase the marginal income tax rate for individuals who earn $250,000 or more and couples earning $500,000 or more from 4.5% to 8.0%. Today, less than 1% of filers are in this category. They already account for 24% of the income taxes paid even though they account for less 19% of taxable income in the state.
When relocation specialists put together their data, it will show that Arizona, instead of having a tax rate that was very competitive with other areas of the country (see attached map), would have an income tax rate higher than all but 8 other states. Right now, we have the 15th lowest tax rate out of the 50 states. The 8 states that would still be higher if the proposition passes are all considered high tax states. Those states have also had poor economic development records.
The very real risk here is that any bad publicity and image change from this (and unlike previous versions, this would be permanent) could hinder future economic development efforts in the state. The resultant slower growth could offset the increase in revenues projected by the proponents of the act over time.
While the need to spend more on education may be real, this is not the structure to do it. Not only is the concept patently unfair, it is bad public policy. If you want more money for something that affects everyone, then everyone should have skin in the game.
In addition, keep in mind that the state's income tax is already very progressive. This new tax rate would put the state at a significant competitive disadvantage. According to experts, nearly doubling Arizona's top marginal rates would make the state's individual income tax one of the most unbalanced in the nation insofar as it would be charging very little to most of the population but very high rates to high-income filers and businesses that file individual income taxes. Arizona's top bracket would be moved from 39th to 9th. Decision makers would certainly take notice.
Again, I am not saying that schools do not need more funding or a better funding structure. What I am saying is that this proposition is not a good approach and could significantly harm the state. Doing harm to the state's economic engine makes no sense. This particular concept for raising significant money for education needs a lot more thought.