The Arizona Free Enterprise Club

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 5^th 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 50^th 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 – 50^th and 49^th 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 43^rd 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 44^th 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 40^th 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 10^th 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.