Arizona Democrat Steve Farley has spent several afternoons this fall working somewhere he never expected to set foot — at the offices of the Koch brothers’ political group.
Farley, assistant minority leader in the state Senate, and other Arizona liberals are joining with Americans for Prosperity, the advocacy group founded by the conservative billionaires, in the hope of defeating a ballot measure that would restrict the imposition of sales taxes on currently untaxed services such as gym memberships, carwashes and digital subscriptions such as Netflix.
The ballot measure is being pushed by Arizona’s real estate interests, which want to change the state’s Constitution so new taxes on their business (and many others) are much harder to enact. Farley fears the measure will limit lawmakers’ ability to raise money for valuable public services, while conservative groups say they prefer lower income-tax rates for all businesses rather than special exemptions that only benefit some.
The proposal in Arizona is one of at least a dozen tax plans that will be on ballots across the nation Tuesday, as advocacy groups have sought to put directly to the public measures that could have long-term consequences on state tax codes.
Supporters of the Arizona plan say the measure would protect an array of businesses from the threat of higher taxes, including veterinary practices and child-care and health-care services.
“We believe service providers already pay a tax when they pay their income tax, and that an additional tax would be a double tax on small-business men,” said Wes Gullett, spokesman for Citizens for Fair Tax Policy, the organization backing the proposition. (Meg Wiehe, a tax specialist at the Institute on Taxation and Economic Policy, argued the sales tax is passed on to the consumers and that these businesses are not “double taxed.") Gullett also said that the organization “has received enormous support from the Arizona Association of Realtors,” calling the group “consistent defenders of consumers.”
Voters in Colorado will have the opportunity to raise taxes on high earners to fund education and transportation infrastructure, while those in Maine can raise taxes to fund a universal home-care program — which would be the first in the nation. A handful of other local tax ballot measures could lead to higher taxes to fund social services, particularly for the homeless, in California cities such as Oakland and San Francisco.
“For a long time we’ve seen states cutting taxes because Republicans controlled most states — now, there are some very interesting tax increases on the ballot, which may be a sign of where some states are going if Democrats do well on Tuesday,” said Richard Auxier, a tax specialist at the Tax Policy Center, a nonpartisan think tank.
But other states and cities have the opportunity to repeal taxes, or restrict future lawmakers from enacting new ones. Among the most controversial is in California, where voters will decide whether to repeal an increase in fuel taxes — levies intended to fund $5 billion annually in transportation projects. California Republicans have hoped the measure could help their vulnerable incumbents survive a difficult election year.
Florida’s Republican lawmakers have also approved a ballot measure that, if approved by the voters, would require a two-thirds “supermajority” of the legislature to enact any new taxes or fees. That would make funding higher education or health-care spending more difficult, should Democrats take control of the legislature. North Carolina voters will also have the chance to change the state’s Constitution to cap the maximum income-tax rate at 7 percent, rather than 10 percent.
Massachusetts organizers had pushed a ballot initiative to tax income more than $1 million to fund education and transportation projects, but the state courts struck the plan down. Similarly, in Arizona, teachers’ organizations had hoped to win higher pay through a ballot measure that would have raised their salaries by taxing the rich. Arizona’s highest court blocked the ballot initiative in August.
“Popular initiatives were thrown out due to wording challenges brought by conservative interests,” said Wiehe, of the Institute on Taxation and Economic Policy.
Arizona's proposal to restrict the expansion of service taxes, known as Proposition 126, is also proceeding amid a glut of spending from business groups.
The Realtors’ political action committee has spent $8.4 million supporting the measure, compared to just $92,000 in spending by a bipartisan group of opponents, according to the Arizona Republic.
But critics have said the effort threatens to strip Arizona lawmakers of a potential source of critical funding. Arizona’s public schools have at least $800 million less in funding than they did a decade ago, says a report by the Arizona Center for Economic Progress, a Phoenix-based left-leaning think tank.
New taxes on services — rather than goods — could provide one avenue for raising new revenue as the American economy increasingly relies on services, opponents of the measure say. And Arizona’s sales-tax base has shrunk because of an array of exemptions, including for private jets and fine art, the report says. Sales-tax exemptions cost the state $12 billion in 2017, up from $6 billion in 2003.
“Proposition 126, if enacted, would jeopardize funding for education, health care and other state priorities,” the report by the Arizona Center for Economic Progress says. It "will make an already regressive tax system worse.”