Proposition 126 is arguably the most difficult proposition to contend with on the November ballot for conservatives.
On the one hand, the initiative shuts the door on a potential tax grab in the future – taxes on services. It creates predictability for businesses in the service industry. And it is finally an example of a citizen’s ballot initiative that curbs taxes rather than doggedly seeks to increase them permanently.
Yet, Governor Ducey, the Maricopa Republican Party and taxpayer watchdog organizations such as Americans for Prosperity and The Arizona Free Enterprise Club are urging their bases to vote ‘No’ on Prop 126.
Why? Not because they want to see services taxed in the future…
Limitations on Taxation Should be Broad-Based and Inclusive
One of the core arguments in favor of Prop 126 is taxpayers should support any measure that prevents future tax increases. Though this is a laudable goal, the problem with this strategy is that when those limitations are narrowly targeted to benefit a particular group, it leaves everyone else exposed to future tax hikes.
That is the fundamental flaw with this service tax initiative. If stopping future service taxes is a good idea, why not apply the prohibition to the entire tax base? Fortunately, we already have a broad-based solution on the books—Proposition 108. Approved by voters in 1992, this constitutional amendment requires any tax increase by the legislature have a 2/3 vote, including taxes on services. If there is a concern of future tax hikes, then a better approach would be to clarify and expand this taxpayer protection rather than creating a new one.
Prop 126 Impedes Comprehensive Tax Reform and Actually Threatens More Tax Increases
Our organization is unapologetically in favor of eliminating the state’s income tax in the future. A mountain of research exists demonstrating states without an income tax and with a lower income tax burden consistently economically outperform states with an income tax or a high-income tax burden.
If Prop 126 passes, it increases the likelihood that we will have to become MORE DEPENDENT on income and property taxes in the future. The reason for this is because our current sales tax base built on taxing goods is shrinking. When our current tax code was shaped over 80 years ago, services made up only a small fraction of our economy. Now it is approximately half and is expected to become a larger share throughout the next century. If the current sales tax base continues to erode, the only option will be higher taxes on our income and property.
How We Cut Taxes Matters
Just as important as ensuring Arizona has as low a tax burden as is possible, is the method by which we craft tax policy. Prop 126 is a Constitutional Amendment that if passed by the voters, could not be changed, tweaked or amended without sending it back to the ballot box.
Simply put, rifle-shotting tax policy into Arizona’s constitution is not how a representative government should function. A more prudent method of governance is the legislative process. The initiative process gives voters a binary choice: vote for this specific policy or reject it. The legislative process in contrast, allows for changes, compromises and inherent checks.
Also, although the citizens’ initiative process was contemplated as a separate and coequal branch of the government and a check on the legislative branch – what it is today is far from that. Rather than initiatives being reflective of the “will of the people” they are banked rolled and run by the machines of special interest groups – Prop 126 is no different.
The Economy Changes, and so Should the Tax Code
The evolution of technology and therefore our economy necessitates changes to our tax code. The revolution in transportation technology on the horizon will dramatically change our economy.
It is conceivable that as ride sharing becomes so affordable and autonomous cars so efficient, that transportation becomes another great commodity by which people subscribe to a monthly service and opt out of purchasing their own car.
Self-driving cars and affordable ride-sharing services has already created a huge disruption in the automotive industry. Most cities in Arizona rely heavily on sales tax and of those revenues a huge portion consists of the taxes generated from car sales.
Car ownership is already in decline, especially among younger generations who are opting out of even getting a driver’s license. Predicting what this phenomenon will look like in 10 years, let alone 50 years is impossible.
Arizonans Could Seriously Regret Passing Prop 126 in the Future.
Despite its ostensible appeal, the actual benefits to Arizona taxpayers’ if they pass Prop 126 are superficial. Yet the manifold downsides are deep, long-lasting and may even create the opposite effect of what many voters wish to accomplish with its passage. For these reasons we encourage voters to take a second look at Prop 126 and Vote No.