Looking to exploit the momentum created by the recent school strike, a small coalition of liberal organizations and labor unions have launched a ballot initiative that would permanently damage Arizona’s economy.

The proposed “Invest in Education” proposition would impose a new top individual income tax bracket of 9 percent, a near doubling of the current top rate of 4.54 percent.  This radical increase would give Arizona the 5th highest income tax rate in the nation, trailing only California, Hawaii, Oregon and Minnesota.

Joining the ranks of the high-income tax states would be a decision that Arizona would quickly come to regret. The evidence is overwhelming—states with a low or no income tax have consistently outperformed high tax states in job creation and economic growth.

It is why for decades Americans have been voting with their feet and moving to states like Arizona with a favorable tax climate. On net, nearly 1,000 people a day are migrating to low income tax states, while the same number is exiting high tax states. If this initiative passes, we should expect entrepreneurs, high earners and employers to take their jobs and investments elsewhere.

To justify their crushing tax hike, proponents are promising that the approximately $700 million in anticipated new revenue from the tax will go toward K-12 funding. Of course, the initiative doesn’t include any language that ensures the money will make it into the classroom, nor does it include any reforms to improve outcomes or parental satisfaction.

They are also selling their plan on the idea that only the “rich” will pay the tax increase. In reality, small business owners and entrepreneurs will be hammered by the increase since they pay their taxes through the individual tax code.

Also unmentioned by the proponents of the initiative is that a new revenue stream for schools is no longer needed. While the Red for Ed debate was raging on at the legislature and in living rooms this spring, economic forecasts confirmed that Arizona would have the largest budget surplus since the great recession.

This tremendous news is not an accident. The rapid acceleration of projected revenue is a direct result of both local and national policies that fostered a pro-growth economic environment in Arizona. It can be argued that lawmakers reacted too slowly during the legislative session to allocate new funding into K-12 classrooms (close to $1 billion), but it illustrated that the best mechanism to generate more money for schools is through economic growth, not job crushing tax increases.

The impact of the largest tax increase in Arizona history would be catastrophic. It will kill jobs, punish small business owners and send families fleeing to other states. The proponents of this measure might think they are being clever by linking two politically attractive targets—school funding and taxing the “rich”—but we are confident that voters will see through their ploy and reject this divisive initiative if it reaches the ballot.

Last Thursday 50,000 individuals descended on the Arizona Capitol in support of a teacher’s strike; the state’s school districts shut down and turned away roughly 800,000 students.

According to the narrative surrounding Arizona’s education system, nearly everyone is willing to accept that teachers are grossly underpaid, that Arizona ranks 50th in per pupil funding and that the state has failed to backfill $1 Billion in pre-recession education funding.  Indeed, according to the machine that consistently ensures Arizona gets no credit for educational wins and disparages our system at every turn, Arizona ranks dead last in every possible educational metric.

But there is more to the story.  And if Arizona is going to take meaningful steps to improve the K-12 system, we must first start with a clear and factual picture.

Last year the Morrison Institute at Arizona State University published a study declaring a startling decline in teacher pay and turnover.  Their work joined the collection of analyses of teacher pay done by the National Education Association (NEA), the Arizona Office of Auditor General (OAG), and National Center for Education Statistics (NCES.)

According to the Morrison Institute, the 2016 average salary of an Arizona elementary school teacher adjusted for “regional buying power” was $40,860 and $46,070 for secondary teachers – 50th and 49th in the country, respectively.

This was a curious finding, especially since most every other national ranking has Arizona with a higher average teacher salary than the Morrison Institute.  The National Education Association ranks Arizona 43rd in the country at an average teacher salary of $47,218.  The Arizona Office of the Auditor General has Arizona teacher salaries at $46,384 and the National Center for Education Statistics has Arizona ranking 44th in the country with average teacher salaries at $47,403.

How could the Morrison Institute arrive at such a different conclusion than virtually every other study on teacher pay? The answer appears to be that they decided to use a combination of questionable wage and cost of living data to show Arizona in the worst light possible.

For example, in calculating the wage figures, the Morrison Institute used the Bureau of Labor Statistics (BLS), a data set that only uses a cross-section of W-2s and leaves out other wage information such as teacher bonuses.  No other major study (including the NCES) use BLS wage data, and the result is a significantly lower average teacher pay figure.

The Morrison Institute skewed the numbers even further when adjusting for cost of living. In comparing wages among states, most studies incorporate the Cost of Living Index (COLI) to adjust for salaries.  The Morrison Institute instead used the Regional Price Parities index, arguably one of the more questionable data sets available. For example, RPP doesn’t take into account the average cost of home purchases, which would lead to a large discrepancy since Arizona is one of the more affordable states to own a home.

When COLI is used to analyze the more comprehensive NCES and NEA data – Arizona is 40th in the country and outranks Colorado ($46,506), Utah ($47,244) and New Mexico ($47,403) in the region.

How would Governor Ducey’s 20by20 plan impact Arizona’s national standing for teacher pay?  A 20 percent raise would increase the average teacher salary in Arizona to $56,661, a $9,443 dollar increase.  Adjusted for cost of living, Arizona would vault to 10th in the country for teacher pay. 

These facts should be empowering and encouraging to Arizona taxpayers who are used to hearing a constant onslaught of criticisms about how despondent the prospects of our public education.  Considerable and noticeable improvements are achievable and can be accomplished without raising taxes.

 

Four months have passed since the enactment of federal tax reform, and Arizona workers and taxpayers continue to be rewarded with new raises, bonuses and expanded benefits. As of April 30th, over $215 Million dollars has now been put back into the pockets of Arizona workers and ratepayers as a result of federal tax reform.

Here is a list of Arizona companies that have rewarded employees with additional pay and benefits:

  • American and Southwest Airlines announced $1,000 bonuses for their nearly 15,000 employees in celebration of the GOP tax plan.
  • CEO Bob Parsons handed out $1.3 million in bonuses to his 725 employees at YAM Worlwide.
  • AT&T and Comcast provided $1,000 bonuses to hundreds in their Arizona workforce.
  • Bank of America will be giving $1,000 bonuses to their 10,000 Arizona employees that make up to $150,000 in total compensation.
  • Boeing has committed to $300 million to charitable investments, workforce training and infrastructure improvements benefiting their 3,600 Arizona employees.
  • Nationwide announced $1,000 bonuses and an increase of their 401(k)-matching contribution for their 1,900 Arizona employees.
  • Wells Fargo, with over 15,000 Arizona employees, announced the establishment of a $15 minimum wage, $400 million in charitable donations and $100 million in additional capital investment.
  • Wal-Mart has committed to providing their 35,000 Arizona employees a guaranteed minimum wage of $11/hour and bonuses up to $1,000.
  • APS announced that they intent to slash $119 Million from their utility rates, which would save the average homeowner $56 each year.
  • Verizon will provide 50 shares of restricted stock (valued at $53/share) to their 2,800 Arizona employees, a total value exceeding $7 Million dollars.
  • JP Morgan Chase will be giving a $750 bonus to their 10,000 Arizona employees and raise starting wages from $15 to $18 an hour.
  • Waste Management, Inc. is providing $2,000 bonuses to nearly 2,000 Arizona Employees that do not participate in a sales incentive or bonus plan.
  • Meridian Bank increased their base wage to $15/hour, increased charitable contributions and capital spending and added 20% to existing bonuses.
  • Comerica Bank will provide $1,000 bonuses to their 100+ Arizona non-officer employees and raised their base wage to $15/hour.
  • Home Depot announced bonuses up to $1,000 for its 10,000 Arizona employees
  • Western Alliance provided bonuses, pay raises and an increase in their 401(k)-matching contribution for their 700 Arizona employees.
  • Washington Federal, which has nearly 200 Arizona employees, has committed to 5% merit increases for employees making less than $100k and an substantial increase of training programs for their workers.
  • Starbucks announced pay raises, expanded benefits and company stock (valued at $500 for shop workers, $2,000 for managers) to their 4,000 Arizona employees.
  • FedEx, with 3,700 Arizona employees, will be giving bonuses, pay raises and a voluntary $1.5 Billion contribution to their company pension plan.
  • Honeywell has committed to boosting their 401(k)-match for its 8,000 Arizona employees.
  • U-Haul will be providing bonuses ranging from $500 to $1,200 for their 3,800 employees.
  • Lowe’s has committed to providing their 4,000 Arizona employees bonuses up to $1,000, expanded benefits and maternity leave and $5,000 in adoption assistance.
  • Chipotle is providing bonuses ranging from $250 to $1,000 for their Arizona employees
  • McDonald’s announced a tuition assistance program for their 16,000 Arizona Employees ranging from $2,500 to $3,000.
  • Cox Communications, with over 3,200 Arizona Employees, will be receiving bonuses ranging from $1,000 to $2,000.

In total, over 125,000 Arizona workers are on the receiving end of bonuses, pay raises and other benefits thanks to the business tax cuts. Combined with the individual income tax reductions that will show up on paychecks next month, the direct financial benefit for Arizona taxpayers as a result of tax reform will be over $1 Billion dollars in 2018.

The Club will continue to expand the list of AZ companies rewarding their employees with bonuses, pay raises and benefits. If you know of a company not on the list, please email info@azfree.org so that the Club can include the good news on our tax cut victory tally.



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The Arizona Free Enterprise Club is a free market policy and advocacy group dedicated to promoting a strong and vibrant Arizona economy.