Education groups consider measure to tax rich – and poor

The activists behind last year’s Invest in Education Act are considering a comeback – they’re eyeing a sales tax hike, an idea they have routinely rejected in the past as regressive and detrimental to the poor.

After seeing their proposal thrown off the ballot last year, they’re making other major changes aimed at garnering broader support, maybe even from foes.

Several education groups familiar with the plan said the coalition shifted its focus to a hybrid of income and sales tax increases that would raise roughly $1.2 billion annually. Of that amount, $500 million would come from raising the state sales tax by four-tenths of a penny, bringing the sales tax dedicated to education to a full cent.

The 2018 effort, which collected more than enough signatures but failed to overcome a legal challenge, relied purely on raising the state income tax on the richest Arizonans to add more funding for education.

Also unlike last year, the coalition – which includes the Arizona Education Association, Stand for Children and the Arizona Center for Economic Progress, among others – will first ask legislators to approve the tax hike, instead of immediately gathering signatures to put the proposal on the ballot.

‘One way or another’

More than a year after the original Invest in Ed initiative was kicked off the ballot, the coalition still hasn’t set ink to paper on a formal plan, and has yet to begin conversations at the Legislature.

AEA President Joe Thomas confirmed that the coalition is considering adding a sales tax hike, though he wanted to leave the group’s options open about exactly how much of a sales tax increase versus raising the income tax.

“A hybrid model is definitely an option, but the ink is not dry on any of this, so it could look like a few different things before it’s over,” Thomas said.

Invest in Ed supporters considered a hybrid model while drafting the 2018 initiative, but they didn’t have polling at the time to show whether voters would support it, he said.

“The thought was you’re either gonna double your enemies – some people aren’t gonna like this tax, some people aren’t going to like that tax – or you’re going to cut through some of the criticism that you’re only targeting high-income people or low-income people,” he said.

They’ve since had some time to poll different scenarios and “the voters seem fine with [a sales tax increase],” he said.

And a hybrid tax increase has a much better shot of winning support from lawmakers, Thomas said.

While Thomas is not holding his breath, he said he’s optimistic lawmakers will “do the right thing” if given the opportunity. Still, AEA and its allies are prepared to go to the initiative route if the Legislature doesn’t send their proposal to the ballot, which would take a simple majority vote in each chamber.

The Republican-led Legislature is traditionally wary of any tax hike. Gov. Doug Ducey has also forsworn tax hikes.

“We’re going to see if the Legislature will do what they should do, what they’re constitutionally bound to do, but the voters’ appetite is they’re fine with a billion dollars,” Thomas said. “This will be on the ballot, one way or another.”

Bipartisan opposition 

Neither Sen. Kate Brophy McGee, R-Phoenix, nor Sen. Martin Quezada, D-Phoenix, supports the new effort, but for different reasons.

Both senators also said they cannot officially commit either way without knowing what the referendum will say.

Brophy McGee, who balks at income tax hikes, said she found it interesting the AEA might be pushing for a sales tax hike after arguing it is too “regressive.” And, after she and Sen. Sylvia Allen, R-Snowflake, each sponsored an education funding bill this year that would bring in roughly $500 million by increasing the Proposition 301 sales tax to a full penny. Their measures also included a provision for low earners to receive a tax credit. Neither bill went anywhere due to lack of support from Democrats and “conservatives not wanting to entertain such a tax increase,” she said.

Thomas and the AEA opposed Allen’s effort, too, arguing it didn’t provide enough funding to make up for the regressive nature of a tax increase that harms Arizona’s poor.

At the time, Thomas said that those efforts “put the biggest burden on the lowest income Arizonans, and the total revenues raised is not enough to solve the teacher shortage crisis or remedy crumbling school facilities and classrooms without enough computers, books or desks.”

For Thomas and allies, a sales tax hike is regressive since it disproportionately affects low-income earners because they already spend more of their income on sales taxes than wealthier earners do.

Last year, he cited a recent study from the Institute on Taxation and Economic Policy, which said the lowest-income Arizonans pay nearly three times more in taxes as a percentage of their income compared to the state’s wealthiest residents.

David Lujan, the center’s director, told Phoenix New Times in January it’s good that conservatives and rural Republicans are pushing for more education funding. But he criticized a sales tax hike.

“I mean, that’s progress. But when you talk about raising a billion dollars in new funding, it’s short,” Lujan said. “It really only raises less than $400 million for new schools, and we have a problem with the regressiveness of a sales tax.”

Allen’s bill never got a full vote in either chamber, but it advanced through her Senate Education Committee down party lines and received support from Rep. Michelle Udall, R-Mesa, her House counterpart. Neither Allen nor Udall returned calls for comment.

Quezada still believes a sales tax hike is “regressive taxation.”

“What it sounds like to me is they are trying to get a lot of the opposition [to last year’s attempt] to back off their effort,” he said. “I don’t think that’s going to work. People who are opposed to it are going to be opposed no matter what.”

Quezada was one of the three Democratic senators on the Senate Education Committee who voted “no” on Allen’s attempt to expand the Prop 301 tax by four-tenths of a penny, arguing a sales tax hike isn’t the way to fund education.

Quezada hasn’t changed his mind, even if allies – not foes – are now pushing the idea.

He believes the public would support a rerun of sorts of the 2018 initiative, since it was thrown off the ballot for a technical reason. Still, he said that voters are aware of the need to fund education and they would be willing to “vote in a way that hurts themselves to help the schools because that’s how big the need is.”

Brophy McGee said if the plan raises income tax, it’s safe to say she won’t back it.

“It has been shown that taxing the wealthy has a lot of unintended consequences,” she said.

Ask legislators first 

Thomas said if the Legislature won’t send a tax hike to the ballot, then the AEA and its allies will go for an initiative.

Last year, the Invest in Education Act collected 270,000 signatures when it only needed 150,642 of registered voters.

Thomas said a plan that includes a sales tax may not fire up the Democratic base as much as a “tax the rich” proposal would, but he said that criticism could be offset by offering low-income tax credits, much like Prop. 301 does.

Approved in 2000, Prop. 301 appropriates roughly $667 million annually from the state sales tax to fund K-12 schools, universities, community colleges and others. The tax was set to expire in 2021 until the Legislature last year extended it until 2041.

“The larger that [percentage coming from a sales tax hike] gets, the more difficult it gets for our membership to support it. What addresses that is an offset,” Thomas said.

About $25 million from Prop. 301’s revenues annually go toward low-income tax credits.

“I think that’s healthy and I think we could set aside that kind of money again,” Thomas said.

The Invest in Ed 2.0 may have some competition at the Legislature.

The Helios Education Foundation is also pushing its own efforts for education funding. That plan would raise $1.5 billion, two-thirds of which would come from property taxes, and the remaining third from sales taxes. Its backers said the plan is to ask the Legislature to refer the proposal to the ballot. If lawmakers balk at the proposal, Helios does not plan to go for an initiative..

Regardless of either effort at the Capitol, education advocates will at least have the chance to weigh in on a Prop. 301 expansion effort from the Senate.

Brophy McGee said she still has to consult with Allen, but she plans to reintroduce last session’s bill which, in addition to funding K-12 education, would appropriate funds to universities and community colleges, saying they have been “terribly short sheeted the last few years.”

Yellow Sheet Report editor Hank Stephenson contributed to this report.