Oct. 10, 2018 – Phoenix – If voters approve Proposition (Prop.) 126 on Nov. 6, the state will lose $250 million annually in education funding and counties will have a dramatic shortfall in money for road improvements.
The Protect Arizona Taxpayers Act, 2018, amends the Arizona Constitution to restrict state and municipal governments from imposing any taxes on services which were not already in place as of Dec. 31, 2017.One consequence of Prop. 126 is the elimination of any taxes on services included within sales tax measures that are scheduled to be renewed in the future. Prop. 126 would reduce revenue by a third from Prop. 301, the 0.6 cent education sales tax set for renewal in 2021. A similar problem occurs for counties that use the sales tax to fund road improvements. Maricopa and Pima counties have measures expiring in 2025 and 2026, respectively. If Prop. 126 passes, any renewal of those taxes will lose almost 40 percent of their revenue, likely meaning they will seek to raise the tax on goods even higher.”Voters should not be fooled. The legislature needed a two-thirds vote to reauthorize the education sales tax because it is considered a new tax. As such, Prop. 126 would strip anything designated as a service from the renewed Prop. 301,” said Dave Wells, research director with the Grand Canyon Institute (GCI) and co-author of the policy paper Consequences of Prop. 126: $250 million cut to Education, Future cuts to Transportation Funding and Higher Taxes on Goods.
“More broadly, passage of the proposition would limit opportunities for the state and municipal governments to increase revenue by expanding the sales tax to include more services at some point in the future. Currently, Arizona exempts most services from taxation.”
Comparison: Current K-12 education sales tax income versus revenue under Prop. 126.
Rejection of the ballot measure leaves open the opportunity for taxing services – a broad category of items that could be taxed individually such as child care, nail salons, or financial services, or as an entire category. “In fact, we could lower the state sales tax rate from 5.6 percent to 3.2 percent by including currently exempt services and still bring in $600 million more for education based on 2017 data from the Office of Economic Research and Analysis & Arizona Department of Revenue,” Wells said.
Currently, the state sales tax includes goods and some services but together they have become a smaller portion of the economy. As a consequence, the state sales tax brings in $1 billion less in revenue than it did two decades ago.
“Lawmakers have consistently reduced taxes and increased tax exemptions over the past 25 years, leading to a reduction in state revenues by $4 billion annually,” says George Cunningham, chair of the Grand Canyon Institute. “GCI has taken a position against Prop. 126 because Arizona can’t afford to permanently close the door on additional sources of revenue needed for education, roads, public safety and other essential services.”
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Dave Wells, Research Director
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Amy Pedotto, Communications Manager
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