Flat Tax Losses + School Voucher $$$$!! = Looming Budget Meltdown. Thanks, Toma! (video)
Short-sighted Republican tax giveaways schemes are poised to make a hot mess of our state's finances. The Legislature is still in session. Repeal the Flat Tax now.
Remember all the surplus funds we had at the beginning of the 56th Arizona Legislature in January 2023?
Remember how the Legislature had so much “extra” money that they “used up almost all of the $2.5 billion surplus on pet projects?”
According to the Arizona Republic’s Mary Jo Pitzl, all that “extra” revenue is so … six months ago.
The crux of the problem is: demand for Empowerment Scholarship Awards (ESAs) quadrupled during the same time period that income tax revenue plummeted due to the Flat Tax. Thanks, Toma!
Universal ESA expansion in 2022 (the ultimate in “school choice”) and the Flat Tax in 2021 (the ultimate income tax dodge for the rich) appear to be different issues, but state-funded private school education and lower income taxes have a lot in common. For one thing, they both primarily benefit Arizona’s wealthiest residents, and, as such, they perpetuate poverty and inequality.
After tortuous sessions, both were rammed through the Legislature in the final days of June in 2021 and 2022. Both were sponsored and championed by Speaker of the House Ben Toma. Powerful people are behind the passage of these radical bills. (If you have ideas regarding who pushed these bills through the Arizona Legislature, please make a comment.)
Demand for School Vouchers Far Exceeds Estimates
In School Voucher Demand Climbs as State Tax Revenues Fall. Some See Budget Crisis Ahead, Pitzl explains that recent reports show two of the state’s economic predictions were way off.
Since expansion of private school vouchers in 2022, enrollment in the state’s ESA program has quadrupled to 61,095 students and is expected to hit 100,000 students by next June, Pitzl reports. This far exceeds the enrollment estimates and could cost $900 million in 2024.
Universal ESA expansion had an unknown cost when HB2853 was passed by the Republicans and lauded by then Governor Republican Doug Ducey in the waning days of the session in June 2022. In a subsequent article this week on school vouchers School Vouchers Were Supposed to Save Money for Arizona. So Far, It’s Not Working, Pitzl writes about the financial impact on the state when students switch to private school vouchers.
How much the state saves or spends on each new student who switches to school vouchers, depends on what educational option the student is leaving.
Charter school (+$751 savings per pupil),
Public school (- $325-543 per pupil depending upon age),
Wealthy public school district that doesn’t get basic state aid (- $6764-7532 per pupil depending upon age),
Home school (- $6764-7532 per pupil depending upon age),
Different private school (- $6764-7532 per pupil depending upon age).
The state saves some money if a student switches from a charter school to an ESA because the state basic aid is higher for charter schools compared to public schools. In every other switching option (items 2-5), the state incurs a new education cost. When you look at items 3-5 above, it is clear to see that ESAs provide the biggest benefit to the wealthy. Looking at these figures it is obvious how ESA program costs got out of hand so quickly. (Data are from the Republic article linked above.)
HB2853 ESA Expansion Was Rammed Through Arizona Legislature
HB2853 was introduced months after the bill introduction deadline had passed and rushed through the entire Legislative process in a week. It was sponsored by then Majority Leader Toma and co-sponsored by 26 other Republican Representatives (not their entire caucus). It was first read on Wednesday, June 15, 2022, assigned to the Ways and Means Committee (W&M) and heard by W&M on the same day.
ESA expansion was not the only “parental choice” education bill that went through W&M, which was chaired by Rep. Shawnna Bolick (Libertarian privatized education advocate, candidate for Secretary of State in 2022, wife of conservative Arizona Supreme Court Justice Clint Bolick and Arizona’s Ginni Thomas), and not through the Education Committee, which was chaired by Rep. Michelle Udall (moderate Republican, public school math teacher, candidate for Superintendent of Public Instruction in 2022 and in-law in the extended Udall family.)
Here’s the link to the two-hour-plus video of the June 15, 2022 W&M Committee meeting. The room was packed with red shirts — supporters of Red for Ed, Save Our Schools and public education — and people wearing private school t-shirts. It was classic Arizona House drama with many people testifying and lots of questions.
Democrats and public school advocates warned that HB2853 could break the budget in the future and would pull money away from an under-funded public school system, which educates most of the state’s children. HB2853 had an unknown cost because no one could predict how many parents would take advantage of universal school vouchers and switch their children to private and religious schools or home schooling. According to Pitzl’s two recent voucher articles, they still can’t predict the ESA cost because different types of student transfers have different economic impacts on the state budget, as noted above. A program that is that unpredictable and potentially volatile should be amended.
The bottom line was: no one knew what the bottom line was on ESAs in 2022. And they still don’t. A program that financially unpredictable should be amended.
We also railed against the total lack of accountability, evaluation and transparency in the ESA program. Just a few minutes into the committee meeting, Ranking Member Rep. Mitzi Epstein and I were asking Toma questions about stakeholder process, accountability, evaluation and return on the taxpayer’s investment.
HB2853 passed out of committee on a party line vote. A week later on June 22, 2022, it passed the House on a party line vote (31-26-3), two days before sine die in the wee hours of June 25, 2022. Governor Doug Ducey joyfully signed HB2853 into law on July 7, 2022. It took less than a year for the public school advocates’ dire predictions to come true.
Governor Katie Hobbs is right. Unless the ESAs are reigned in, the program will break the state budget. The Legislature is still in session. They could amend the ESA legislation or repeal it.
ESAs + Flat Tax are a double whammy on our state finances, as you’ll learn below. But … wait … there’s more. Also, in her first article, Pitzl reports that sales tax revenue may be going down but for different reasons. Any significant drop in sales tax is most likely due to consumer belt-tightening due to economic uncertainty and unrelated to new state laws.
The best way to reign in spending on school vouchers is to evaluate the programs and eliminate the educational providers that don’t meet minimum standards.
When taxpayers are paying hundreds of millions of dollars for private school for a handful of students, it’s time for evaluation of the ESA program. Here are just a few ideas for starters.
How many students have Empowerment Scholarship Awards? How many students have more than one ESA? How many families have multiple ESAs? How have these data points changed since the beginning of school vouchers in Arizona?
Many of the early ESAs were for disadvantaged kids like children in foster care or those with disabilities. Did a private school education help them succeed?
Is the school voucher system equitable? What is the demographic, economic and geographic break of students with ESAs?
Where’s the money going? What percentage of the projected $900 million will go to religious schools, other private schools and home schooling? How much is being spent and how many are being served outside of Maricopa County?
Do private school students perform better on Arizona’s standardized tests?
ESAs were designed to have ZERO evaluation. We should know what we’re paying for, who benefits, if the funds are equitably distributed and what the return on investment for the state is.
Arizona families and taxpayers should be able to look at comparable student achievement data and cost data, as well as curricula, for all state-funded educational opportunities: public schools, charter schools and all ESA voucher-eligible options including home schooling and private school. Currently, there is transparency only in public education. And … it should go without saying that government should not pay for any religious education.
Paraphrasing Udall on the floor of the House during an ESA debate, first she celebrated the extensive school choices that Arizona parents have and then added: but the state is not obligated to pay for all of those choices. I completely agree!
Almost all of the Revenue Loss Was Due to the Flat Tax
Everybody knows that the surest way to prosperity is through tax cuts and deregulation.
— Rep. Ben Toma in Ways and Means Committee (paraphrased)
During the same time frame that ESA demand and costs quadrupled, Pitzl reports that “state revenues plummeted 44% in May 2023, compared with a year earlier, a decline that ‘significantly exceeded expectations.’” Nearly all of the lost revenue is due to the Flat Tax.
The Flat Tax was designed to send “extra” revenue back to taxpayers by lowering the income tax rate to 2.5% across-the-board, regardless of income. The Flat Tax is a “regressive” tax rate. Under Arizona’s previous “progressive” income tax rate system, the lowest tax rate was 2.59% for people who made $26,000 or less. The more people earned, the higher their income tax rate was but not anymore. The Flat Tax featherbeds the wealthiest among us, barely benefits the poor, and is crushing the budget faster than anticipated.
First of all, “extra” revenue is a myth perpetuated by Republican Tax Cut Kings like Toma, Ducey and Senator J. D. Mesnard. The “extra” revenue that Republicans brag about when they attempt to justify perpetual tax cuts are manufactured budget surpluses due to stingy policies.
Bad policies like funding Temporary Assistance for Needy Families (TANF) at a level benchmarked to 36% of the 1992 poverty limit; underfunding maternal and child health; underfunding education at all levels; promoting mass incarceration and mandatory sentencing; and implementing high hurdles for getting and keeping AHCCCS and TANF have perpetuated chronic poverty, homelessness, generational trauma and adverse childhood experiences in Arizona.
But … we got Tax Cuts!
With so much need in our state, it was fiscally irresponsible for Flat Tax Cheerleaders Toma and Ducey to push this massive welfare package for the rich through the Legislature while ignoring the other 99% of the population.
Libertarian Economic Scheme Poised to Break the Budget, Now What?
Everybody should stop talking about Kansas. Arizona isn’t Kansas. They had the guts to pass the Flat Tax but didn’t have the guts to pass the budget cuts necessary to make it work.
— Majority Leader Ben Toma during Flat Tax floor debate (paraphrased)
I’m assuming Toma didn’t realize Arizona’s monthly income tax revenue would drop by nearly HALF in one year due to his Flat Tax proposal, but perhaps he should have looked closer at the “Kansas Experiment.”
From the beginning, Arizona’s Flat Tax was projected to significantly hurt future revenue and require budget cuts. Since the Legislature is still in session, the smart move would be to repeal the Flat Tax now before repeat Kansas’ mistakes. It would require massive political will to repeal the Flat Tax. Kansas did it — after several punishing years of budget cuts.
One of the largest income tax cuts in Kansas history, the Kansas Legislature passed the Flat Tax, and it took effect in July 2012. (You can read the detailed history here.) It didn’t take long before Kansas’ “monthly revenue for the state government ‘crashed’ and ‘fell massively short of projections’” in the spring of 2014. Sound familiar? Arizona’s Flat Tax created a revenue decline that “significantly exceeded expectations” in a little more than a year. Arizona’s Flat Tax is on track with Kansas’ financially devastating Flat Tax.
By 2017, Kansas had had "‘nine rounds of budget cuts over four years, three credit downgrades, missed state payments’, and what The Atlantic called ‘an ongoing atmosphere of fiscal crisis.’" Kansas fell behind neighboring states in many key indicators of financial health like job creation, unemployment, production and tax collections. After a protracted battle with Republican Tax Cut King Governor Sam Brownback and a few vetoes, the Kansas Legislature repealed the Flat Tax in 2017. It’s shocking to me that after the Flat Tax made a complete mess of Kansas’ finances just a few years ago that in 2023 the Kansas Legislature passed a Flat Tax — AGAIN — but governor vetoed it. (Again, there’s got to be some BIG money behind cutting income taxes for the rich while destroying state governments and crippling public services along the way. Who is it? Please comment below with your ideas.)
Arizona, wake up! Like it or not, our economy is built on people and corporations moving here or vacationing here. Water shortages, extreme heat, fire danger, an uneducated populace, widespread poverty and homelessness, lack of good-paying jobs, lack of affordable housing … not a pretty picture.
Early losses from Arizona’s Flat Tax are tracking with Kansas’ disastrous Flat Tax. Massive revenue losses from the Flat Tax on top of hundreds of millions of dollars in other tax giveaways is not a sustainable economy in the long term.
Let’s learn from history! Repeal the Flat Tax now before our economy is destroyed, and we fall further behind neighboring states.
Flat Tax Met Resistance in the House & from the Grassroots
The Flat Tax and other tax giveaways were a topic of hot debate in 2021 when the 55th Legislature convened with many freshmen members, including several newly-elected Libertarian Freedom Caucus members in the House. Legislative Republicans were divided along the 2020 election denial fault line and along the tax giveaway fault line.
Fake Elector and newly minted State Rep. Jake Hoffman earned the nickname “Dr. No” on the House Appropriations Committee b defiantly voting against “pork barrel” spending regardless of party. He and a few other Republican bills voted “no” with all of the Democrats on the committee and killed some Republican pork barrel projects. On the floor, there was an odd bipartisanship with Libertarians and Progressives voting against many tax giveaways in 2021. (This trend has been going on since 2017, my first year. In fact, when Arizona Agenda’s Hank Stephenson, then with the Capitol Times, asked me what surprised me the most about my first term, I said, “I was surprised how many times I voted with Eddie Farnsworth” because we both consistently voted against corporate tax cuts.)
In a climate dominated by discord within the Republican Caucus, the Flat Tax and the 4.5% income tax cap had a tortuous path through the House. This Legislative Update from June 8, 2021 Two #AZGOP Budget Bills Defeated in #AZ House (video) gives a detailed account of the budget debates that day.
To buy all 31 Republican votes on the budget and pass it with no Democratic votes, the Republican leadership stuffed the Flat Tax and many other extreme bills that couldn’t pass on their own into the budget. HB2899 and HB2900, the budget bills that included the Flat Tax and the income tax cap, initially failed to pass because Rep. David Cook voted “no” with the Democrats, making the vote was 30-30. Bills need 31 votes in the House and 16 in the Senate to pass; that’s how many Republicans are in each chamber. They can’t afford to lose anyone.
I don’t know what they gave him, but Cook came around and the Christmas Tree budget — full of non-budget policy items — passed in late June 2021. Lawsuits and multiple referenda to stop the Flat Tax and other parts of the budget sprung up immediately. The podcast below talks about all of the grassroots action that was ignited by outrage over the budget. Non-budget sections of the budget were eventually thrown out by the courts, and we had to hear them again in 2022. (Ugh.) The Flat Tax survived.
Now that we know that Flat Tax is not affordable or wise — particularly on top of the runaway ESA enrollment and costs and hundreds of millions of dollars in other tax giveaways baked into our laws — what’s the Legislature going to do about it?
Speaker Toma, you and your caucus created this looming financial crisis. Fix it before it gets worse. Repeal the Flat Tax and cap or repeal Empowerment Scholarships. To protect Arizona’s future, our finances and water need to be .. at the very least … adequate and stable. Republican leadership is not giving us that.
Since you and Senate President Warren Petersen are holding the session open unnecessarily, you can repeal the Flat Tax and fix ESAs. Do your job. Fix the problem you and your cronies created.
This Legislative Update explains the Flat Tax and the income tax cap.
Epstein and I question the sheer volume of tax giveaways being considered by the W&M Committee under Toma — many with unknown price tags.
This video is a podcast from October 2021. So many bad laws were stuffed into the budget in June 2021 that a series of petition drives and law suits resulted — including one to stop the Flat Tax.
Related Links on School Vouchers (ESAs)
Roots of Arizona Libertarianism Can Be Found in 1950s Virginia (video), June 24, 2021
AZ Voters Said NO! to ESA Expansion & YES to Public Education, March 17, 2021
Ways and Means Committee Meeting video on ESA Expansion, June 15, 2022
Flat Tax
Republican Flat Tax Feeds Economic Inequality in #AZ (video), May 25, 2021
#AZGOP Budget Has Flat Tax & Tax Breaks But Lacks Votes (video), May 29, 2021
Two #AZGOP Budget Bills Defeated in #AZ House (video), June 8, 2021
#AZ Democratic Budget Shows Difference in Priorities, Values & Spending (video), June 10, 2021
#AZ Republicans Propose Irresponsible Flat Tax Budget for 3rd Time (video), June 22, 2021
Grover Norquist Tax Pledge Is Unrealistic in Tax Giveaway State (video), April 26, 2022