New Education Tax Again Survives, High Court Appeal Pending
A trial court judge on Tuesday threw out several legal challenges to a new voter approved tax on high-earning Arizonans, leaving just one additional issue raised by challengers to Proposition 208 in play while the state Supreme Court is considering whether the measure is constitutional.
Maricopa County Superior Court Judge John Hannah Jr.’s ruling dismissed three of four remaining legal challenges raised by business interests as well as Republicans, who control the Legislature. He said all three failed as a matter of law.
Hannah rejected a challenge to voters’ ability to raise taxes at the ballot box. Opponents claimed that only the Legislature can vote to raise taxes, that if voters did have that right the measure must get a 2/3 vote as is required of the Legislature and that a provision preventing the legislature from undoing the tax was illegal. Hannah said that argument was utterly without merit.
He then dismissed a challenge that argued that Proposition 208 should be blocked because it did not contain its own funding source. Hannah had ruled earlier that was clearly not the case and made that official on Tuesday.
Hannah also rejected the claim that the initiative usurped the Legislature’s authority to tax and spend money.
“The claim rests on the premise that the Arizona Constitution somehow places the Legislature on a higher or more powerful plane than the people acting by initiative,” Hannah wrote. “It doesn’t.”
The one issue in the case that still must be resolved in whether the new revenue will put the state’s K-12 schools above a constitutional spending limit. That will require more court proceedings.
Hannah had previously refused to issue preliminary injunctions blocking the new tax, and the Supreme Court held arguments in April that focused in large part on the school spending limit. It has yet to rule on the case and has no timeline for releasing its decision.
Proposition 208, which voters passed in November, imposes a 3.5% tax surcharge on income above $250,000 for individuals or above $500,000 for couples. Supporters say it could raise about $940 million a year for schools, although the Legislature’s budget analysts estimate it will bring in $827 million a year.
The measure was an outgrowth of a 2018 teacher strike that resulted in educators getting a 20% pay raise over three years — but did not meet their other demands.
Republican Gov. Doug Ducey opposed the measure and told a business group in March that he’s hoping that either the Supreme Court blocks it or the Legislature comes up with a way to sidestep the new tax.
The current budget proposal would largely shield the wealthy from having to pay the new tax by enacting a new 2.5% flat tax on all income and capping the top payment at 4.5% for those subject to the surcharge. That is the current top rate in the state’s existing graduated income tax schedule.
The Legislature, however, has been deadlocked on the plan for weeks.