Arizona State Capitol

Arizona State Capitol

PHOENIX -- Arizonans will not get a chance to decide whether to hike taxes on the rich to generate more money for education.

In a brief order Wednesday, the Arizona Supreme Court said petition signers were not informed that the measure would do more than increase the tax rate on those earning more than $250,000 a year. It also would eliminate the indexing of income tax brackets to account for inflation.

Chief Justice Scott Bales, writing for the court, said a majority concluded that omission "creates a significant danger of confusion or unfairness."

The ruling is a significant setback for the education community, and not just because it means there will not be a dedicated revenue stream for public education. There were hopes that having this measure on the ballot, coupled with a referendum already on the ballot over expansion of vouchers, would bring out voters who also would support candidates willing to put more money into public schools.

There was no immediate comment from supporters of the Invest in Ed initiative, including the Arizona Education Association.

Wednesday's ruling is a victory for the Arizona Chamber of Commerce and Industry which led and financed the legal fight to block a public vote.

Organization president Glenn Hamer argued that hiking income taxes on the wealthiest Arizonans "would just create a drag on the state's overall economy." And he said that if the state targets the rich, many would just choose to move elsewhere.

That question is now academic.

There is no dispute that the main provision of the measure would have imposed an 8 percent state income tax on earnings of more than $250,000 for individuals and $500,000 for couples. That compares with the current 4.54 percent rate.

And there would be a 9 percent tax rate on anything over $500,000 for individuals and $1 million for married couples filing jointly.

Proponents estimated that the additional revenues would generate about $690 million a year for public education.

In crafting the language for those new tax brackets, the initiative spelled out the rates for all of the brackets. That's where the problem arose.

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In doing so, it reset the cut points between brackets to where they were in 2014. That before the Republican-controlled Legislature voted to index the brackets each year, a move designed to ensure that those whose income went up no faster than inflation did not end up in higher tax brackets.

For example, in 2014 the break point between the 3.36 and 4.24 percent tax rate was $50,000; for 2017 the indexing moved that up to $51,721.

Legislative budget analysts said the immediate impact of repealing indexing would be a $49 million hit to taxpayers, most of them making far less than the new $250,000 cutoff.

Potentially more significant, the language would eliminate future indexing and the inflation protection that is supposed to come with that.

Attorney Jim Barton argued, unsuccessfully, that the wording of the initiative really would leave indexing in place.

That paved the way for the Supreme Court to take a closer look at how the initiative was described to the approximately 270,000 people who signed the petitions to put the issue on the ballot. And Bales pointed out that the change in indexing was never mentioned in the legally required 100-word description that must accompany each petition.

"The description is inadequate under the statute," the chief justice wrote.

In tossing the measure from the ballot the justices sidestepped the thorny legal question of the validity of a 2017 law which says that initiative petitions must be in "strict compliance" with all election laws. That was designed by GOP lawmakers,at the behest of the Chamber of Commerce, to override prior court rulings which said that people proposing their own laws need only "substantial compliance" and that minor technical errors should not keep an issue off the ballot.

In a ruling earlier this month on this initiative, Maricopa County Superior Court Judge James Smith concluded legislators acted illegally in changing the standard.

The judge said he reads the Arizona Constitution to provide voters with wide latitude in being able to enact their own laws. And that, Smith said, means lawmakers cannot tinker with it.

"Legislation requiring strict compliance with every statutory provision regarding initiatives unconstitutionally infringes on separation of power and fundamental rights under the Arizona Constitution," he wrote.


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