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What the Devil won't tell you

Invest in Ed socks it to the rich — and it's more than fair

Wisdom (or folly) of tax bump to fund schools will play out over long term

The Invest in Ed ballot initiative may have flaws but "class warfare" ain't any of them, Republican protestations to the contrary aside. If anything it's a settlement against an aggressor in a political war long ago lost.

In fact, it’s time for that tired political phrase to scrapped. It went out with Kings of Leon and Netflix DVDs arriving in the mail. It’s no longer a serious description of reality. For the 10 percent to now accuse the 90 percent of "class warfare" is like the Norman army blaming the Anglo-Saxons for establishing a shield wall on the field outside Hastings in 1066.

If the Normans had stayed in France ... none of this would be necessary.

Proposition 208 would raise the top income tax bracket from 4.5 to 8 percent and give money to cash-starved public schools. 

It’s not perfect. I got news for you. It’s public policy. Public policy never is perfect. Hell, consumer products aren’t perfect either. It will have unintended consequences. More news: So has every change and innovation in human history. 

Prop. 208 is politically opportunistic. The group backing it polled voters to figure out just how to lift Arizona from the cellar of K-12 funding after decades of floundering there. Turned out, taxing the “rich” proved the most popular mechanism.

Know what else has polled well since the 1980s? “Personal responsibility.” That’s been the corporate battle cry in offloading risks to the worker so shareholders, CEOs and corporate officers can party on private jets. More in a second.

Singling out the income tax may not necessarily be the economically smartest funding source. It probably would have been better to spread the taxes across a broader base than just levies on income.

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Ballot initiatives are public policy-making of last resort, resorted to because our state has needs the people want to fill but the Legislature won’t address.

For decades now, Arizona lawmakers have starved schools of funding by design. It wasn’t an accident. It is a destination. In fiscal year 2018, the last year we have good data, Arizona ranked 50th out of 51 states and D.C. when it comes to per-pupil K-12 funding. The state lagged so far behind that it could take a couple billion dollars in new money just to climb out of the bottom 10.

Business leaders know something must be done and have tried to come with their plan, but failed. Republicans will not support a tax increase. Anything less than a tax increase is exposed to economic contractions that bust the budget. 

Something needs to be done. Money must be raised, and folks in the middle class on down have suffered long enough, while policy in Arizona has comforted the comfortable. That's been all the rage nationally since the election of Ronald Reagan. 

It’s time for them to pay up. Recess is over.

The 'rich' defined

We should first define rich. My definition limited to those who can live affluently either entirely off interest or while socking away a big enough chunk of change to set them up to live off their winnings later. 

Someone making $2 million a year can live on $500,000 of that and stash a few hundred thousand after taxes. Compounding interest and earnings can build up enough principal so they can live on 4 or 5 percent returns that will equal that half-mil. That lifestyle gets locked in without the need for a paycheck and any future wages can just add to the kitty that's earning interest.

And their tax rate on long-term capital gains means they will only pay 20 percent on earnings.

Those are the rich and the rich took everything.

Stools and prongs

Now, I’m not saying that there was an evil cabal who in 1979 looked out over the economic landscape and said to themselves: “My God, the American middle class is the greatest example of wealth creation in human history. Man, what a score that would be!”

The real story is more complicated but the end result is the same. They came at the middle class in dribs and drabs, taking a little at a time.

Take pensions. Defined benefit pension plans of the sort that grandpa earned were once a staple of benefits that added a hidden 8% worth of income. It was one leg – along with Social Security and savings — of the three-legged stool that would prop up the golden years. So 8 percent on a median household income of $60,000 a year amounted to $480 a month.

Now its gone or going away. Pensions have dramatically declined as part of employee compensation over the years and look to be “going the way of the dinosaur.”

What’s replaced it are “defined contribution” plans like the 401k, where workers buy in with their take-home money and employers match some. According to the Bureau of Labor Statistics, the 2016 employer contribution was down to 3 percent in the western states. That saves employers at least $250 a month per employee, who must find that money out of their own paycheck. It’s not an extra bennie, anymore. So that’s another $300 plus bucks out of the worker's weekly paycheck. So personal responsibility required the wage-earners to find an extra $550 on their end to keep up with their parents.

Take health care. Out of pocket costs for a typical American household in 1988 ran $1,089 per year. In Arizona those costs now run $4,000 (with some wild variations) but that’s another $125 after inflation that employees lose out of their monthly salary.

Take college. In academic year 1986-87, in-state tuition at Arizona's universities cost about $2,728 in today's dollars.

Then we switched to a “user pays” model so the state could cut taxes and lure businesses. It now costs an Arizona family $12,600 for single year. A price that would have covered just about all of the price of a four-year degree. Putting two kids through college in the '80s required the same chunk of change that would nowadays get one through just their sophomore year.

To send just one kid to college would mean (after jiggering a compounded interest calculator) stashing away an extra $300 per month for two college funds.

And pay? Pay didn’t budge at all, adjusted for inflation between 1989 and 2018. 

These numbers are meant to illustrate a point. Retirement, health care and college costs have been a three-pronged attack on middle class wealth, crushed against an anvil of stagnant wages.

Spoils of war

Why did this happen? To increase shareholder value of business. Brother, did it work. The Dow Jones Industrial average was in the 800s in 1979 and that was just 50 points higher than the peak in the 1920s. Today it’s at 28,000. We built the American middle class with the stock market gaining 500 points in 50 years. We've been liquidating it so the market can gain 26,000 in 40.

Here's a crazy outlier example. Jeff Bezos is worth $187 billion. He could give each of his 1.2 million workers $30,000 apiece and be worth $151 billion. He barely gives them bathroom breaks.

That's what a class war looks like.

Be clear, very little of this is capital investment into a company. It’s one Gomer buying a piece of paper from another Gomer. The company that issued the stock is seeing none of that money.

It’s a goddamned casino where the house never wins. America built it for them. The American middle class paid for it. When the American people ask for their end back, it’s “class warfare.” It’s “socialism.”

Give me a break, you little whiners.

Just in time

Oh but hey. They’re the “job creators.” The rich clearly play a role and a good-sized role at that. There’s a reason we don’t mind them being rich.

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Big businesses and the wealthy like to say their contribution to society is “giving people jobs” so we should just let them off the hook for the social contract.

Understand, no one gives someone a job. A company will hire someone to do a job that needs to be done because the value of the employee's compensation is higher than the cost of compensating the employee. Businesses pay employees because they produce profits.

To realize that value, a company needs to sell in a marketplace, but that "free' market actually requires maintenance costs. One of those costs is a public school system that gives people the smarts to earn money to patronize that company in the first place.

However, just one side of that equation has gotten the love in the last 40 years and now they act like they are the masters of the universe, dragonslayers who bequeath us jobs in a show of their goodness. 

There are maybe three people in the U.S. whom have done it all by themselves. Warren Buffet, LeBron James and Beyonce all say “You gotta spread the money around.”

Digging out

In 2018, Arizona spent $8,133 per pupil on K-12 education, which ranked only above Utah. That was after voters raided the state land trust to increase school funding but before Gov. Doug Ducey struck a deal to raise education money for schools.

I warned people in 2015 just how hard it would be to climb the ranks. In 2018, 44 states spent more than a $1,000 per pupil more than Arizona. The state was $4,000 per pupil below the national average. That's about $3.6 billion per year in new spending. Invest in Ed would get us not even a quarter of the way there.

And yes, there is some correlation between spending and achievement. There's much more between the lack of spending and the absence of achievement. 

If it's causation you want, look no further than child poverty rates. States like Arizona with high child poverty rates (one in five of our kids are in poor homes) always lag in achievement. If the wealthy would prefer to invest in fixing poverty, I’m sure that would be cheaper (snark, snark). It’s also why Utah can spend so little on K-12 and suffer economically not as much and get decent achievement. Utah has the lowest child poverty rate in the country.

On the other hand ...

The usual suspects on the right are again screaming about falling skies. It’s hard to know when to take them seriously when they warned of crashing clouds when Arizona expanded health care for the poor under Obamacare or raised the minimum wage.

Both these changes happened and now, the Goldwater Institute starts its argument against Prop. 208 with the words: “Arizona embodies the very best of America’s political and economic traditions, from limited and responsive government to thriving entrepreneurship and innovation. “

You mean, aside from those two monstrosities of public policy paving our way to rack and ruin, right?

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The Goldwater Institute is a good example of how groups make a good living detailing unintended consequences while ignoring whether the intended consequence was achieved. 

Cut them some slack, because consequences matter and on this one, they may not be wrong to throw up a warning flag.

There is a risk here that should be understood. Arizona has always relied on outside investment by selling itself as a low-cost, low-service state. Transitioning out of that can be tricky. We can raise the hell out of taxes as a percentage tomorrow and still not be a high-service state.

That puts at risk our success in getting businesses to move here because we are a low tax state. We just sent them a signal that we aren’t like that anymore. "Hey world, we just raised the hell out of income taxes to make sure we don’t rank at the bottom of K-12 spending."

Oh yeah, Arizona. Where do you rank now? "Uhh. 41st." 

We run the risk of charging shiny Beamer prices for a Hyundai with faded paint.

The cost-sensitive investments that our state’s economy has been built on may find somewhere else to go.

What is commonly known as the Laffer Curve is real. Sorry, Libs. Demand reacts to costs. Taxes increase costs. They will increase revenue too, of course, to a certain point and then those revenues will start to fall. 

The 78 percent increase in taxes associated with Prop. 208 is an awful long throw. Will it land the state on the back end of the curve so we take in less revenue than we would with a lower rate? 

No one knows for sure but ... Lordy. I would have nudged up corporate and income taxes and maybe a surcharge on certain high-end properties so the tax crept and didn't lunge. This tax may not raise as much as we think.

Also, this tax kicks in at annual incomes above $250,000 a year for individuals, $500,000 for married couples. That seems like a lot of coin but given my definition of rich, I’m not sure that qualifies. That’s about $15,000 in monthly take-home. Let's not confuse those capable of building wealth with those who are Scrooge McDuck rich, even if they all fall within that "Top 1%."

But our taxes are already so low, this bump — which would mean an 8% progressive tax rate at the top bracket — sounds steeper than it is. The surcharge of 3.5% on our highest earners would mean a couple pulling in $600,000 would pay an additional $3,500 each year to fund teachers and schools. A married couple with a cool million in earned income would be putting a total of $17,500 more into the pot on top of what they're already paying.

Where the money is

Few other states have gone to town on supply side economics and “coddle-the-rich” policy as much as we in Arizona.

The state’s income tax is among the lowest in the country. Our property tax is also low. So are corporate taxes. However, the regressive sales tax rates here are among the highest in the country.

We import out-of-staters whose education was properly funded, while Arizona kids can grow up and ask "Would you like fries with that?" while they try to figure out why you gave them an extra quarter with your twenty on a $15.23 order.

We gotta go somewhere to find the money to improve our school funding picture — and the wealthy are the people of whom we have asked the least. Now they have to pitch in.

A responsible Legislature and governor would have taken care of this years back. They’d have mixed and mingled between state needs, business concerns and approximated a policy that works best.

We don’t have one of those. We have a Legislature that gives business whatever it wants regardless of what the state needs. They were collaborators in the class war on behalf of the wealthy, in the upper-crust's quest to become the super rich.

In so doing they let the public school system starve itself. It's time to make it healthy, and high earners are more than fair game after the game they have played with the rest of us.

The pendulum has swung in favor of the fortunate few for decades. It's time for it to swing back.

Blake Morlock is an award-winning columnist, who worked in daily journalism for nearly 20 years and is the former communications director for the Pima County Democratic Party. Now

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Arizona's Invest in Ed proposition asks the well-off to shoulder the burden of increased school spending. About time.


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