PHOENIX — The proposed new levy on Arizona’s rich under the Invest in Education initiative is being purposely understated and misleading, lawyers for business interests trying to knock it off the ballot told a judge Wednesday.
Attorneys for both the Invest in Education initiative and the Arizona Chamber of Commerce and Industry all agree that the measure, if approved by voters, would create an effective income tax rate on earnings above $250,000 of 8.0%, up from 4.5% now.
Only around 4% of all Arizona taxpayers are expected to be affected.
However, the description provided to those signing the initiative — and in the initiative text itself — says the measure will impose “a surcharge at the rate of 3.5%.”
That, the business group contends, misleads the public about the extent of the change which is designed to raise $940 million a year for Arizona’s K-12 education.
They contend what’s really at issue is a 77.7% increase in the top tax rate. And now they are asking Maricopa County Superior Court Judge Christopher Coury to declare that the failure to sufficiently explain the extent of what is being proposed means the petitions and the initiative wording are so flawed they cannot be put before voters.
At least part of the objection from the business foes goes to the use of the word “surcharge.”
“What the initiative refers to as a ‘surcharge’ is a tax,” according to attorney Brett Johnson who is representing the business interests trying to keep the measure off the ballot.
And it’s not just the word “surcharge’ that he is arguing to Coury is misleading.
“When the petition’s 100-word description refers to ‘establishing a 3.5% surcharge’ on this income, it gives voters the misimpression that the income in question is currently untaxed,” Johnson said. “After all, ‘establish’ refers to starting something that does not currently exist.”
All that, he said, is designed by proponents of the initiative to convince people to sign the petition and support the measure.
But for Johnson to win the case — and have the measure removed from the ballot — he needs more than his own assessment. So the foes retained economist Jim Rounds.
“It would have been improper and possibly misleading to use the word ‘surcharge’ instead of ‘tax increase,” Rounds told Coury on Wednesday. Rounds suggested words like “surcharge” and “revenue enhancement” are designed to hide the true nature of what is being proposed.
But attorney Marvin Ruth pointed out that Rounds, in submitting his own argument urging voters to reject the initiative, actually used the word “surcharge.”
Rounds said he still considers it a tax hike, saying it would take the top tax rate up past 8%.
But Ruth pointed out it’s not that simple.
He said the surcharge, if approved by voters, would exist independent of the income tax system. And what that means, Ruth said, is the 3.5% levy would remain even if the legislature were to abolish the regular state income tax.
And that, Ruth suggested, makes it a surcharge versus a simple tax increase.
The hearing is expected to continue into Thursday, with Coury issuing a ruling on whether the measure can go on the ballot within days.
Whichever side loses is virtually certain to seek Arizona Supreme Court review.
