As a job-creating business owner responsible for managing hundreds of millions of dollars for Arizona families, I strongly oppose the new “education tax”, and would recommend several solutions.
First, we have many older clients who are on the cusp of selling their businesses. Under its tax law, Arizona does not distinguish between ordinary income and capital gains, as does the federal tax code. Therefore, many Arizona business owners, after a lifetime of hard work, pay tax on that very long-term gain (if any) at ordinary state tax rates upon the one-time sale of their businesses. I strongly recommend to the Legislature that they establish a state capital gains tax rate, especially for the sale of closely-held businesses. Specifically, I strongly recommend that this capital gains tax rate be capped at no more than one–half Arizona’s ordinary tax rates.
Second, seniors in Arizona often receive most, or a good portion of, their income from their investments as they gradually sell off their investment portfolios to maintain their standards of living. I recommend that, in particular, seniors be exempt from all state tax on their investment gains, or that – at least – be assessed only the capital gains tax rates described above. I favor a state capital gains tax rate for Arizonans of all ages. However, the issue for seniors is particularly acute. I would also note that high-income earners now subject to the new education tax would tend to benefit from a capital gains tax rate applicable to Arizonans of all ages. This could serve as at least a partial offset to their additional “education tax” burden.
Third, I am a senior myself who “chooses” to work. However, I would remind the Legislature that most working seniors do not “chose” to work. They must work to make ends meet. The least we can do for these folks who have paid taxes (including property taxes for schools) their entire lives is to cap their tax liability at half the otherwise applicable rate. I strongly recommend a maximum tax rate on earned income of seniors of no more than one–half the aggregate tax rate they would otherwise pay.
Fourth, alternatively as an offset to the “education tax” on income, I suggest the Legislature consider a direct tax credit for those who must pay the tax.
Unfortunately, all of these solutions tend to deplete the General Fund to offset monies allocated exclusively to education. I would therefore recommend that the Legislature consider a commensurate reduction in education funding from the General Fund, preserving those monies for other equally important purposes.
Finally, I hope that the Legislature is actively participating in the legal effort to overturn the new “education tax.” As an attorney, it seems pretty clear to me that only the Legislature – accountable to the voters – has the right to raise taxes on any sub-set of taxpayers. If not, then the public at large can make this decision based on the whims of the moment. Why not vote for an initiative to assess an extra tax on, say, only registered Democrats or only Republicans, or on people of a certain ethnicity? Or on reporters?
Keith P. DeGreen is CEO and portfolio manager for DeGreen Capital Management, LLC.