Voters in November will decide whether to send more money to education through an income tax on the state’s highest earners.
The claims against — and in support of — Proposition 208, the Invest in Education Act, are stacking up as Election Day nears. The proposed 3.5% income tax surcharge would apply to individuals making $250,000 or more or married couples making $500,000 or more.
Both committees are spending millions of dollars on advertisements and marketing to appeal to voters. The advertisements make big claims about whether the money from the tax will go to the classroom, how the tax will impact Arizonans, and how much money already goes to the state’s public schools.
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Where would Invest in Ed funding go?
The Joint Legislative Budget Committee, a third-party state entity that analyzes the financial impact of ballot propositions, estimates that Proposition 208 would raise $827 million for education, about $100 million less than Invest in Ed’s initial estimate.
The measure would send the money to the following areas:
50% of the money would go to hiring and raising the salaries of teachers and other certified employees, such as counselors and nurses.
25% would go to hiring and increasing the salaries of student support staff, including classroom aides and bus drivers.
12% would go to career and technical education programs.
10% would go to programs dedicated to retaining and mentoring teachers.
3% would go to scholarships for the Arizona Teachers Academy, which waives college tuition for teachers-in-training who commit to work in Arizona schools after graduation.
See what’s on your ballot
Will Proposition 208 bring teacher pay raises?
Invest in Education claims that most of the money would go to boosting educator salaries, fighting the state’s chronic teacher shortage by enticing more educators into the classroom with higher salaries.
Opposition groups claim that Proposition 208 does not guarantee the money would go toward raising teacher salaries.
The wording in the measure states that 50% of the funds should go to hiring and increasing the base compensation of teachers, but also to other classroom personnel who wouldn’t traditionally be defined as teachers.
The measure defines a teacher as “non-administrative personnel, including certified teachers, who instruct students or support student academic achievement … including classroom teachers, early childhood teachers, mentor teachers, instructional coaches and academic interventionists.”
The “no” camp argues that the expanded definition of teacher is misleading because it involves pay raises for support staffers, including school counselors and others who work in the classroom.
But education advocates have long argued that the state’s existing definition of teacher is narrow, leaving many people who work in the classroom underpaid.
Proponents also say schools will be subject to the same accountability measures, including audits, they are subject to now, to make sure the money is spent as it is intended.
Is income tax a reliable source of school funding?
The Goldwater Institute, a conservative think tank, argues that income tax as a revenue source is too volatile for teachers to depend on for salary hikes.
Dennis Hoffman, an economics professor with Arizona State University, said individual income tax is unpredictable.
“The volatility among these taxpayers, the volatility of income, is just mind-boggling,” he said. “One year it grows 20%, the next year it falls 5%.”
David Lujan, who leads the Invest in Ed committee, said even if the amount raised by the measure varies from year to year, any revenue from the measure is guaranteed to go to educator salaries. Money in the hands of state lawmakers, he said, has been “repeatedly cut,” leaving uncertainty for schools.
“Prop. 208 will give schools more certainty in their budgeting than they have had in 20 years because the money goes into an account that the politicians at the state capitol cannot touch,” he wrote in an email.
Lujan, director of The Arizona Center for Economic Progress, is one of the authors of the measure.
Are Arizona teachers the lowest-paid in the nation?
Proposition 208’s campaign hinges on the idea that Arizona teachers make some of the lowest salaries in the nation. It’s unclear where the state falls on a national ranking of teacher salaries. National rankings are usually a few years behind and do not account for recent major investments in education funding.
The amount of money that’s flowed into education in Arizona since 2018 is significant: The state spent $6.5 billion on education in its 2020 budget, compared with $5.3 billion in 2018, according to Joint Legislative Budget Committee numbers.
The governor unveiled his “20×2020” plan shortly before tens of thousands of Arizona teachers walked out of their classrooms to protest stagnant salaries and anemic classroom funding. The plan promised the raises would come in phases.
It dictated a 1% raise in the 2017-2018 school year, a 9% raise in the 2018-2019 school year, a 5% raise in the 2019-2020 school year and a final 5% raise to make it to paychecks in the 2020-2021 school year. But not every teacher received a 20% raise, because allocating the money was up to school districts and charter schools.
Officials said the definition of teacher was narrow and did not include others who needed pay raises for competitive salaries. Some districts spread the money among more employees, making the raises lower than 20%. Some districts did not get enough money for the raises promised by the governor.
In 2018, a spokesman for the Governor’s Office told The Arizona Republic that any districts receiving less money than needed for the raises could be taken care of in future budget years, calling those districts “outliers.” Districts that were underfunded, including the Kyrene Elementary School District in the southeast Valley, have not reported any additional funding to cover the full raise amount.
Despite the infusion of funds from 2018, Hoffman said the state lags in education funding. He said Arizona likely needs to spend at least $4 billion more annually on education — both the K-12 system and higher education institutions — to reach the national average for education spending.
Will Proposition 208 hurt small businesses?
A popular rallying cry against Invest in Ed claims the measure will hurt small business owners by placing an onerous tax on them. Gov. Doug Ducey makes the claim in a testimonial on the opposition campaign’s website.
Supporters are quick to point out that the tax kicks in when taxable income, usually lower than gross adjusted income, is at or above $250,000 for individuals or $500,000 for couples. That means the surcharge doesn’t kick in until after deductions are factored in.
The committee against Proposition 208 estimates that 50% of those affected by the tax are small business owners.
Many of the figures linked to the claim come from a report from the Goldwater Institute. The report cites an analysis of Internal Revenue Service data to come up with the 50% figure. The group estimates 90,000 people would be affected, a fraction of the 2.9 million Arizonans who pay income tax every year. Of the 90,000, about half are small business owners, according to the researchers’ analysis.
Garrick Taylor, a spokesman for the committee campaigning against Proposition 208, wrote that the estimate was derived partly by looking at how many high-income filers report business income.
Hoffman said the measure only would affect small business owners who pull in taxable income above the measure’s income thresholds. Of the 500,000 small businesses in Arizona, most won’t be hit with the tax, he said.
“It’ll hurt some small business owners and won’t hurt others,” he said. “If you’re a mom and pop retailer … with very modest income from your small business, you will not be affected by this tax because it is only going to apply to taxable incomes.”
Invest in Ed supporters deny that the measure would hurt small businesses. Lujan said overall, the measure would affect a small fraction of taxpayers.
“There are going to be some wealthy individuals who own businesses that will be taxed,” he said. “Those are not your typical mom and pop small businesses; those are going to tend to be on the larger side.”
According to the U.S. Small Business Administration, the median income for self-employed individuals is about $50,000, Lujan said.
The Joint Legislative Budget Committee estimates that the average tax increase for those making between $250,000 to $499,999 would be $120, the average increase for those making between $500,000 and $999,999 would be $5,549 and the increase for those reporting income between $1 and $4 million would be $40,287.
Will millionaires flee Arizona?
The “no” camp also argues that Proposition 208 would hurt the Arizona economy by driving away high earners and businesses.
Hoffman said it’s possible that the added surcharge could drive others away.
“Some people are gonna move, some people that would have moved here are not going to come here,” Hoffman said.
Some opponents of the measure and the Joint Legislative Budget Committee have cited a 2016 Stanford study in making this claim. However, the Stanford study, after analyzing IRS data, concluded that millionaires were not moving at a significant rate from high-income tax states to low-income tax states.