Arizona voters recently approved a proposition to impose a 3.5 percent surtax on high-income individuals and joint filers to increase education funding. This measure will raise the top income tax rate from 4.5 percent to 8 percent, which changes Arizona’s top rate from the fifth lowest in the nation to the eighth highest. Voters were clearly supportive of the education initiative, but funding it by way of an income tax increase may set the stage for bigger problems in the future. People have been moving to Arizona to escape high-tax states in recent years, but economists say that this may change due to this income tax increase.
Economists Arthur Laffer, Stephen Moore, and Erwin Antoni predict that this tax increase will mean the migration of 700,000 fewer people, 237,000 fewer jobs created, and a $25.5 billion reduction in personal income growth in Arizona over the next 10 years. These predictions are staggering, and while they are predictions, any negative effects even close to these would be detrimental to Arizona’s economy.
Despite the evidence of the negative effects of income taxes, especially relative to other forms of taxation, old habits die hard. State and local revenues are expected to take a hit from the pandemic and economic shutdown, so income tax increases may be on the minds of many lawmakers. In Missouri, we’re already seeing localities toying with the idea of tax increases (though not necessarily income tax increases). Income tax increases have very real economic consequences and our state cannot afford them. In this case, Missouri shouldn’t follow in Arizona’s footsteps.
