More than 50 Arizona business groups are urging the state’s congressional delegation to reject several tax increases included in the budget bill being considered by the U.S. House. 

In a letter sent Tuesday to the delegation, the groups said, “The proposed tax increases that will pay for the massive $3.5 trillion reconciliation package will hurt Arizona businesses, employees, and consumers at a time when the state’s economy continues to grapple with the ongoing effects of the pandemic and acute workforce shortages.” 

Signers of the letter included the Arizona Chamber of Commerce & Industry and local chambers of commerce from across the state, as well as groups representing various industries such as real estate, trucking, construction, tourism and agribusiness. 

The enormous multi-trillion-dollar budget bill is a priority of Congress’ most progressive members, who are demanding its passage as part of a deal also to pass an infrastructure bill already passed by the U.S. Senate with bipartisan support. 

A budget bill that is too large in size and scope, however, will face a difficult path in the Senate, where the Senate parliamentarian will determine how broad the bill’s policy provisions may be and where Sen. Kyrsten Sinema, D-Ariz., and Sen. Joe Manchin, D-W.V., have indicated their strong reticence to passing such a progressive bill. 

Sinema has already said she will not support a $3.5 trillion bill and on Monday Politico that she also opposes a Medicare prescription drug pricing scheme included in the bill. 

Arizona job creators are opposed to the bill’s many tax increases, including increases in the personal and corporate income tax rates, as well as tax increases on foreign earnings and on savings and investment and more. The bill also limits deductions taxpayers rely on to reduce their overall tax exposure. 

“This bill includes several policies that will harm small businesses,” said Chad Heinrich, Arizona state director for the National Federation of Independent Business. “Whether it’s through the elimination of stepped-up basis, limiting the Small Business Deduction, or increasing taxes on small corporations, this legislation will weaken and damage small businesses in Arizona and throughout the country. By hitting small businesses at this vulnerable time, this legislation will result in fewer jobs and less work hours for employees and reduced investment in small businesses which will lead to less economic growth.”

Buckeye Valley Chamber of Commerce President and CEO Deanna Kupcik said the bill would result in higher costs to utility ratepayers. 

“As we said in our letter, because utility providers are regulated by the Arizona Corporation Commission, they must pass along the increased costs resulting from the corporate rate increase directly to consumers,” Kupcik said. “That means more dollars off the bottom line of Arizona businesses large and small.” 

If and when a bill passes the House, it will head to the Senate, where it will be considered under that chamber’s reconciliation rules, which means only a simple majority of 51 is needed for passage, rather than the usual 60 votes required to end a filibuster.

“That (Senate Majority Leader) Chuck Schumer is hoping to jam this through the Senate using reconciliation tells you all you need to know about what’s included in this bill,” Arizona Chamber President and CEO Danny Seiden said. “A bill that affects so many aspects of the U.S. economy deserves bipartisan consideration and support, which this legislation is sorely lacking. We thank Sen. Sinema for making clear to the White House that this bill is seriously flawed.”  

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The Arizona Supreme Court has ruled that the “Invest in Ed” ballot initiative will appear on the November ballot. 

The initiative was initially removed from the ballot in July by a Maricopa County Superior Court judge who ruled that the proposition contained a “misleading” 100-word petition summary. The state Supreme Court overturned the lower court’s ruling in Molera v. Hobbs on Wednesday.

“A written opinion will follow,” said Chief Justice Brutinel, delivering the court’s order to reinstate the proposition on the general election ballot.

Opposition swells

Amber Gould, chairwoman of the Invest in Education campaign, , “Today’s ruling by the Arizona Supreme Court keeping Invest in Education on the November ballot is an important victory because it gives millions of Arizona voters the opportunity to put more resources in our schools.”

Arizonans for Great Schools and a Strong Economy, led by former Superintendent of Public Instruction Jaime Molera, has opposed the measure from the beginning. 

Following the ruling on Wednesday, Molera , “Today’s decision is a disappointment. Between now and Election Day we look forward to sharing with voters how damaging this 77.7% income tax increase on small business will be to Arizona’s economy and how it will fall far short of what proponents’ have promised the state’s teachers.”

The opposition group led by Molera has pledged to appeal the decision again, this time “in the court of public opinion.”

Arizona could become one of highest tax states in nation

If passed by voters in November, the initiative would raise Arizona’s top income tax rate by 77.77%. This raise would vault Arizona among the highest income tax brackets in the nation, between Wisconsin and New York.

It would also result in Arizona having the highest income tax bracket among its neighbor states Utah, New Mexico, and Colorado. California beats out Arizona, however. Nevada does not have a state individual income tax.
Arizona Gov. Doug Ducey opposes the initiative, submitted for the publicity pamphlet that is sent to voters before the election that the structure of the initiative would force small business owners to pay “a whopping amount, especially considering that our economy is recovering from recession and high unemployment.”

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A ballot initiative to raise income taxes on certain taxpayers and small businesses is “poorly conceived” and “will not create a sustainable source of funding that is worth the economic malady it will cause” according to a new analysis by a tax watchdog group.

The report by the Arizona Tax Research Association examines Arizona’s journey from a comparatively high-tax state in the 1990s to one that is more competitive today regionally and nationally and the effect the initiative’s passage could have on the state’s prospects for future economic growth.

The report finds that despite Arizona reducing individual income tax rates by 36% since the 1990s, the individual income tax produces far more revenue today than it did in 1991 when adjusted for inflation.

“Adjusted for inflation, Arizona’s individual income tax rate is bringing in 185% more revenue today than it was back in the 90s when the highest rate was 7%,” ATRA Senior Research Analyst Sean McCarthy and the paper’s author said. “The proponents of the tax increase want to establish a new 8% tax bracket, which is 77% higher than the current top rate. We know from history, however, that doing so risks undermining the ability to attract new taxpayers and investment to Arizona.”

The paper cites data indicating that high-wage earners have sought out Arizona as a destination as the state’s tax code has become more attractive.

Between 1991 and today, tax filers with an annual adjusted gross income greater than $500,000 grew nearly 400%. Those filers are now responsible for more than $1 billion in state revenues.

McCarthy rejects the notion that high earners would still choose Arizona if income tax rates were to spike.

“We hear often that New York and California have lots of millionaires despite having high tax rates and that Arizona can do the same,” McCarthy says. “That ignores certain inherent factors those states have that Arizona simply doesn’t. People can move around. Arizona has been a net importer of new residents and tax filers from high-tax states, but that can all change if we join the top-10 list of states with the highest income tax rates.”

Small businesses that are organized as pass-through entities, like partnerships or S Corps, pay their taxes on the individual tax code and will be affected by the proposed tax increase. Citing IRS data, the ATRA report says more than a quarter of Arizona business filers and a large percentage of Arizona’s revenue will be impacted by the increase.

“Businesses make decisions on a number of factors, but a state’s tax environment is near the top of the list,” McCarthy said. “If increased hiring, expansions, and new investments don’t pencil out on a spreadsheet because of a higher tax burden, then Arizona’s economic growth is likely to be severely slowed.”

The paper takes issue with the claim by proponents that Arizona’s K-12 education system will benefit from the tax increase.

“The entire premise of this proposal is incredibly cynical. The proponents aren’t shooting straight with teachers,” McCarthy said. “Not only is the revenue that will come from this tax highly volatile and highly unlikely to deliver what the proponents are promising, but the dollars won’t even go to base K-12 funding.”

McCarthy says advocates for increased education funding would be better served to support policies that will encourage more robust economic growth and, as a result, generate more available resources for the Legislature and governor to appropriate to schools and teacher salaries.

“Lawmakers and the governor have demonstrated that they’re ready and willing to devote more dollars to the education system when the resources are available,” McCarthy said. “This initiative won’t even deliver for teachers the dollars that the 20×2020 teacher pay raise plan and the restoration of additional assistance funds have, but it will certainly create a drag on economic growth.”

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The Superior Court of Maricopa County on Friday removed the “Invest in Education” proposition from the ballot on account of its 100-word description posing a “significant danger of confusion or unfairness to a reasonable Arizona voter.”

Judge Christopher Coury based his on a 2018 decision by the Arizona Supreme Court in that prevented a similar proposition from appearing on the ballot. 

Both the 2018 and 2020 proposals sought massive income tax increases on certain taxpayers, including small businesses.

Massive tax increases

As by 91ֱ��, the “Invest in Ed” initiative would raise state income taxes on top income earners by 77.7% — moving the top rate from 4.5% to 8%. The tax increase would also affect small businesses organized as  pass-through entities, including sole proprietorships and limited liability companies.

The big tax hike was ruled to be misrepresented by the summary provided to Arizona voters who signed a petition to send the measure to the November ballot.. 

described the tax increase as follows::

“establish[es] a 3.5% surcharge on taxable income above $250,000 annually for single persons or married persons filing separately, and on taxable income above $500,000 annually for married persons filing jointly or head of household filers…”

By failing to alert voters on the impact on certain business entities and the true size of the tax increase, the Court found that the summary was sufficiently “mislead[ing]” to warrant it being removed from the ballot. 

Principal clauses

The initiative was found to completely exclude several key provisions from its voter summary.

The “No Supplant Clause” included in the proposition would lock certain funds towards specific ends, “limit[ing] the power and authority of the Arizona Legislature”, which has direct power over budgeting. Despite curtailing the power of the state House and Senate that is constitutionally assigned, it has no mention in its summary.

Furthermore, the authors of the initiative excluded the “Local Revenue Clause” from the ballot summary.

Responses to Molera v. Hobbs

Arizonans for Great Schools and a Strong Economy, the committee that took the initiative to court, for Arizona voters, students, parents, and taxpayers. 

Jaime Molera, the former state superintendent of public instruction who chairs the opposition committee, stated that “This was the right decision. As we made clear, the tax increase proponents’ entire process, from signature gathering to their 100-word summary, was flawed and misleading.”

The Invest in Ed organization, sponsored by the Arizona Education Association, as “blatantly… political.” 

Invest in Ed has pledged to appeal the ruling to the Arizona Supreme Court. 

Before the proponents announced their decision to appeal, Molera said, “Should the proponents appeal the decision to the state Supreme Court, we anticipate the same outcome.”

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Arizonans for Great Schools and a Strong Economy today filed a lawsuit in Maricopa County Superior Court arguing that proponents of an initiative to increase income taxes by 78% misled voters by failing to disclose the full size and scope of the plan’s tax increase.

“Just as they did in 2018, the tax increase proponents have failed to shoot straight with Arizona voters,” Arizonans for Great Schools and a Strong Economy Chairman Jaime Molera said. “Marketing their plan as a ‘surcharge’ attempts to withhold from voters the real impact of their scheme. If the proponents got their way, the top marginal tax rate would jump to 8%, nearly double the current top rate. The Supreme Court in 2018 and in previous cases has been unequivocal: a petition’s 100-word summary cannot confuse voters and a measure’s principal provisions must be clearly explained. Instead, the tax proponents have again attempted to hide the facts.

The argument also lays out the proponents’ failure to inform petition signers who would bear the brunt of the tax increase.

“It should have been disclosed to voters that this tax increase wallops small business,” Molera said. “Small businesses pay their taxes on the individual portion of the tax code. If signers would have known that the backbone of the Arizona economy gets clobbered by this proposal, then they might have thought twice before signing.”

The lawsuit also cites advertisements for petition circulators indicating the circulators would be paid based on the number of signatures they collect, a violation of Arizona law.

“The Arizona Legislature in 2017 passed a law that clearly banned the practice of paying petition circulators based on the number of signatures they collect, yet based on their own help-wanted ads, that’s exactly the payment model the proponents used in 2020,” Molera said. “Not only is their 100-word summary fatally flawed, but they’ve clearly violated state law when it comes to paying for signatures.”

Molera says he anticipates that the income tax hike measure will not appear on the November ballot.

“From early childhood to post-secondary, it is vitally important that our state’s policies and funding framework reflect education’s importance to the future of Arizona,” Molera said. “But this proposal the tax supporters are attempting to send to voters is not only poorly conceived and sloppily assembled, but it ignores the law. Arizona deserves better. As was the case two years ago, I anticipate that this year’s initiative won’t survive this legal challenge.”

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On Monday, the Arizona Chamber of Commerce & Industry hosted Caroline Harris, vice president of tax policy and economic development, and Ed Mortimer, vice president of transportation and infrastructure, both from the U.S. Chamber of Commerce.

Harris gave an update on tax reform and an inside look at some of the compromises that were made in order to pass this landmark legislation. She explained that while the policy, done under reconciliation, was confined by the budget, policymakers were still able to make major headway on the stiflingly high corporate and pass through tax rates.

Harris says it is still too early to predict exactly how each state will choose to adjust to the federal tax code, as it will entirely depend on the unique needs and budget constraints of the state.

While Harris conceded that there are aspects of the policy that may need adjusting in the future, and more can always be done to improve and simplify the tax code, she mentioned to the group “the only thing that is unacceptable was maintaining the status quo.”

The lunch continued with Ed Mortimer, who explained how the tax code and infrastructure combine to ensure our forward growth and long-term prosperity as a nation.

Now that the country has taken steps toward a more modern, internationally competitive tax code, we need the infrastructure to match in order to support a thriving economy and aid it forward.

Mortimer outlined the U.S. Chamber’s plan for a modernized infrastructure, which includes implementing a 25 cent increase to the federal fuel user tax, leveraging more private and public sources of funding, streamlining permitting processes at local, state and federal levels and bolstering the American workforce through work-based learning and comprehensive immigration reform.

Mortimer admits, however, that the process of massively improving our outdated infrastructure will require time and patience, a theme to which both he and Harris routinely referenced.

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The enactment of the Tax Cuts and Jobs Act is making a significant difference in the pockets of Mesa residents and businesses alike. Read the .

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