Arizona’s leading advocates for the small business community are strongly opposing Proposition 208, an initiative to raise the state’s top individual income tax rate by 77.7%. If the measure passes, they say, it could mean lasting damage to the backbone of the Arizona economy and severely hobble post-pandemic recovery efforts.
Most small businesses typically are organized as pass-through entities, meaning they pay their taxes on the individual portion of the tax code, not as corporate tax filers. Proposition 208’s huge tax increase will wallop small businesses as a result, an impact that will ripple across the broader economy.
A report by the Arizona Tax Research Association citing IRS data and research from the non-partisan Tax Foundation finds that 58% of Arizonans in the private sector work for a business that pays its income taxes via the individual income tax.
Chad Heinrich, Arizona state director for the National Federation of Independent Business, says Proposition 208 arrives at a particularly challenging time for small business.
“Across Arizona, thousands of small businesses are struggling during a pandemic that has completely upended the economy and business environment,” Heinrich said. “Twenty percent of small business owners expect they’ll have to close their doors if economic conditions do not improve in the next six months. Only 19% of owners expect conditions to get back to normal levels by the end of the year. Proposition 208’s huge 77.7% tax increase adds insult to injury to small business job creators already reeling during unprecedented economic conditions. The proposal is terrible for a host of reasons, but its timing is even worse.”
Jess Roman, CEO of the Arizona Small Business Association, says Proposition 208 dramatically undermines the pro-small-business environment that Arizona has leveraged to foster one of the strongest, most competitive economies nationwide.
“Proposition 208’s insensitive treatment of small business job creators risks long-term damage to the Arizona economy,” Roman said. “Despite their claims to the contrary, Proposition 208’s authors demonstrate a shocking lack of understanding of how small business owners ensure sustained operations by reinvesting in their business and storing up working capital. Under the weight of a crushing tax increase, Proposition 208 punishes the enterprising small business owners who, through grit, determination, and risk-taking create thousands of jobs and power the Arizona and U.S. economies. Small business owners will be voting no on Proposition 208, and we’re urging voters across the state who care about small business jobs to do the same.”