Tax and Spend: Arizona’s Battle over Proposition 208 Goes to the Courts

Elections
Eliza Luna, a ballot designer with the Maricopa County Elections Department, counts ballots for the Arizona Presidential Preference Election at the Maricopa County Tabulation and Election Center in Phoenix, Ariz., March 17, 2020. (Cheney Orr/Reuters)
How progressives are using ballot initiatives to raise taxes.

Last year, as part of their efforts to expand government subsidies to teacher unions, progressives across the country targeted Arizona’s ballot box with an unusual initiative to impose a potentially devastating new income tax on the state. Fortunately, the Arizona Supreme Court effectively ruled the initiative unconstitutional last month. But the ruling won’t stop progressives from targeting other states.

Euphemistically called “Invest in Education,” Arizona’s Proposition 208 levied a burdensome tax “surcharge” that would have nearly doubled income taxes on anyone earning more than $250,000 — which sounds like a high figure until one realizes that it didn’t distinguish between the personal income and the business income of small-business owners, and included no provision to adjust for inflation. That meant owners of small businesses — the chief employer in Arizona, as in all other states — were deemed “rich” (as in “tax the”) based not on their actual earnings, but on how much their business earned.

The initiative also forced the state to send this money to school districts without regard to what the legislature was already spending on education. In other words, Prop. 208 imposed a devastating new tax on the state’s primary generator of economic growth and then deprived the legislature of power to make responsible funding decisions.

Prop. 208 marked the climax of years of agitation that first peaked in 2018 when activists staged an illegal strike to close the state’s schools and then tried to ram through their massive tax increase on Arizonans via an initiative just months later. The state’s Supreme Court threw this first attempted money grab off the ballot, ruling that the Yes campaign was fudging the numbers in voter-information materials. The second time around, however, the “Invest in Education” tax hike was narrowly adopted as Prop. 208 on the November 2020 ballot, thanks to the backers’ false claims that state lawmakers were depriving schools of funding.

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In reality, Arizona lawmakers had just poured over a billion dollars of new funding into public schools, for 20 percent teacher-pay raises and other purposes. Nonetheless, the Prop. 208 campaign claimed with a straight face that Arizonans “have waited years for action from their leaders and got nothing.”

But Arizona made a prime target for tax-raisers, thanks to the fact that the state has an unusually low threshold for voter initiatives. Where other states require supermajorities to approve an initiative — or require initiatives to be approved in two separate elections — in order to ensure that voters are really sure they want to do whatever the initiative proposes, no such safeguards exist in the Grand Canyon State. That means a mere 51 percent of voters can dramatically alter important aspects of state law. That attracts demagogues who seek to manipulate voters with misleading ballot initiatives and, as was the case last year, impose policies that could wreck the state’s economy, just when it’s poised to break out of the doldrums imposed by a year of nationwide shutdowns.

Indeed, Prop. 208’s authors sought to exploit voter ignorance in several ways. Not only were their allegations about Arizona’s school-funding trajectory untrue, but when called on the fact that the tax would fall hardest on small businesses, “Invest in Education” advocates simply lied: “There are no business-tax increases,” they claimed, while insisting that it was “legally impossible for any business to be taxed under Prop. 208.” As the Arizona Free Enterprise Club pointed out at the time, this was simply false. Even worse, the initiative was designed to override the state constitution’s limitations on spending — limitations voters themselves added to the constitution through ballot initiatives in the 1980s and 1990s. Among other things, those measures established an expert commission to compare proposed expenditure increases against actual increases in student counts and inflation, so lawmakers could spend responsibly. Amazingly, the teacher unions behind Prop. 208 sought to exempt the measure from these limits — not by amending the constitution, but by simply declaring that Prop. 208 was not subject to this constitutional rule.

That didn’t go over well with the state supreme court, which ruled in August that an ordinary law cannot simply lay aside the constitutional rules. To the extent that the initiative mandated spending above what the state’s highest law allows, the justices declared, it was unconstitutional. They then sent the case back for trial to determine exactly how much Prop. 208’s spending mandate will exceed the legal limit.

That’s a welcome result, but it’s hardly the end of the story. The Prop. 208 saga — along with the $200 billion bonanza unions scored from federal COVID packages — make clear union leaders’ intentions to keep ratcheting up the costs, rather than the quality, of America’s K–12 schools. Arizona’s experience suggests that progressive activists will continue to frighten voters with false claims about school funding and, if necessary, disregard even existing constitutional limitations on their power in the quest to do so.

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