Schools funded: Arizona’s Prop 208 passes with 54% support

Posted 11/3/20

Backers of Proposition 208 late Tuesday declared victory for their plan to levy an income tax surcharge on the top 4% of wage earners.

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Schools funded: Arizona’s Prop 208 passes with 54% support

Posted

The richest Arizonans may end up financing additional cash for public schools.

Backers of Proposition 208 late Tuesday declared victory for their plan to levy an income tax surcharge on the top 4% of wage earners.

There appeared to be justification for their optimism, with the results showing pretty steadily all evening that about 54 percent of Arizonans were in support against 46 percent opposed. At this point the only thing that could upset the numbers is a strong showing of late-cast ballots.

Proposition 208 would alter the state's top income tax rate.

Right now individuals earning at least $250,000 pay 4.5% for any earnings above that figure. The same cutoff exists for couples making more than $500,000 a year.

The initiative proposes a 3.5% surcharge on top of that, bringing the effective tax rate on those top earnings to 8%.

Opposition, led by the Arizona Chamber of Commerce and Industry, argued that would be among the highest tax rates in the nation.

But foes pointed out that the levy affects only those earnings above the threshold. So a couple with taxable income of $550,000 a year would pay that extra 3.5% only on $50,000, or an additional $1,750 a year.

Foes also said that about half the levy would be paid by the owners of certain small businesses. These are firms organized under sections of the Internal Revenue Code which pay no corporate income taxes but instead have the net earnings passed through to the individual owners.

The counter argument was that the higher tax did not apply to a firm's gross earnings but only what was left in profits for the owner after paying all expenses for payroll, rent, supplies and even any money set aside in retirement plans.

Joe Thomas, president of the Arizona Education Association, said the results show that Arizonans are willing to act to provide more dollars for schools when state lawmakers balk.

Thomas said the additional dollars -- an estimated $940 million a year -- will not only raise teacher pay but also provide dollars to hire more instructors, reducing the average number of students in classrooms. Arizona has among the highest student-to-teacher ratio in the nation.

But it will take some time for the dollars to start flowing.

The higher tax rates are effective with income earned in 2021. And even with some people making estimated tax payments during the year, the big infusion won't come until the spring of 2022.

According to the most recent financial disclosure reports, proponents and opponents spent a combined $30 million as of two weeks before the election. The pro-208 side had spent about $3 million more than foes. But those numbers also include the cost of getting the measure on the ballot in the first place.

It almost didn't get there.

Maricopa County Superior Court Judge Chris Coury, ruling in a lawsuit financed by the state Chamber, had ruled the legally required 100-word description was misleading and failed to describe all the key provisions. But that decision was overturned by a unanimous ruling of the Arizona Supreme Court.

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