NAIOP Arizona, the commercial real estate association, strongly supports the goal of increasing funding for public education. Our industry relies on continued robust economic growth, and a strong education system is an important factor in attracting new businesses to Arizona.
However, NAIOP Arizona opposes the proposed “Invest in Education Act” because it would be a step in the wrong direction for Arizona’s economic prospects. This ballot initiative attempts to provide additional funding for education by imposing a massive income tax increase on a few wealthy state residents.
Even more concerning is the impact this act would have on small businesses, most of which are S Corps or LLCs, which file taxes under the individual income tax code. According to the U.S. Census Bureau, Arizona small businesses employ 1 million people or 44.5 percent of the private workforce. These small businesses would be put at a disadvantage relative to larger corporations whose income tax rates would remain unchanged.
The act would create two new tax brackets, one for filers with annual incomes between $250,001 and $500,000, the other for filers reporting income of more than $500,000. Individuals and small businesses in the first bracket would be taxed a rate of 8 percent on all income above $250,000, a 75 percent increase. Those in the next bracket would pay 9 percent on income above $500,000, a 98 percent increase. Arizona would go from having the 38th highest top income tax rate in the nation to having the fifth highest, putting it ahead of high-tax locations like New York and Washington, D.C.
“This is uncharted territory, as no state has doubled its individual income tax rate overnight,” says Suzanne Kinney, President and CEO of the Arizona Chapter of NAIOP. “This policy would drive high-income earners and small businesses out of Arizona.”
Arizona gets about a third of its income tax revenue from approximately 3 percent of filers. Driving them out of state would have serious consequences for education, and everything else the state does. Arizona gets about 3 percent of its income tax revenue from a group of just 500 non-resident filers who earn more than $500,000. These payers could easily file in another state.
“It’s crucial to increase teacher pay. That’s why NAIOP and other leaders of the business community supported Gov. Doug Ducey’s proposal to give educators a net pay increase of 20 percent by the year 2020. We remain committed to identifying additional, sustainable funding sources for teacher salaries and other educational needs,” says Kinney.