Arizona effort to tax rich draws biz concerns

PHOENIX — Arizona voters could decide on a proposal to hike income taxes on the wealthy to generate hundreds of millions of dollars for schools this fall, a measure that leading business advocates say would damage the state’s economy.

The Invest in Education Act is a ballot initiative that’s won support among tens of thousands of teachers who went on a six-day strike to demand higher school funding before a state budget gave them a 20 percent raise over three years.

David Lujan, director of the Arizona Center for Economic Progress and an organizer of the initiative, said the proposal is designed to affect a small amount of residents who can afford to pay.

“I think people realize that what came out of the Legislature is not going to fulfill the funding requirements students in Arizona need,” Lujan said. “This is a fair way to fund our schools.”

The measure would bring in an estimated $690 million for public education by increasing income taxes to 8 percent for individuals who earn $250,000 and households who earn more than $500,000. Individuals who earn more than $500,000 and households who earn more than $1 million would pay 9 percent — which would be among the top five highest tax rates in the nation. Right now, the state ranks 38th.

Citing that same statistic, the Arizona Chamber of Commerce this week created an opposition committee. The group says the proposal would jeopardize small businesses, whose owners file taxes as individuals, and make it less likely for businesses to locate here.

Chair Brandy Wells, chamber vice president of external affairs, said the planned 20 percent teacher raises are possible because of the state’s healthy economy — and that the new tax rates would throw that into jeopardy.

“It would make no sense to pursue policies that would weaken our competitiveness and reduce revenues available for education,” Wells said.

Jared Walczak, an analyst with the District of Columbia-based Tax Foundation, said taxing high earners can be risky because their incomes are often based on capital gains and investment vehicles — which are subject to market-related swings.

“You don’t want to be a state where a single bad year creates a crisis,” he said.

Ballot initiatives to hike taxes on the rich are rare but not unheard of. A measure in Washington state in 2010 to adopt an income tax for individuals who make more than $200,000 was overwhelmingly voted down.