The Goldwater Institute filed a lawsuit on Monday on behalf of a coalition of Arizona taxpayers, legislators, and small business groups including the Arizona Free Enterprise Club to challenge the legality of Proposition 208.
Plaintiffs argue that the unconstitutional billion-dollar tax increase would be devastating to Arizona’s economy.
“Prop 208 will have a devastating impact on our economy, small business owners and entrepreneurs struggling through the pandemic,” said Arizona Free Enterprise Club President Scot Mussi. “We don’t believe that this was good policy for the state, and also believe that several provisions in the measure violated Arizona’s Constitution. Small business owners should not be subject to an unconstitutional tax, which is why we are suing to stop this initiative from going into effect.”
“Prop. 208 slams the state’s middle-wage earners and small-business owners at a time when they can least afford it,” said Victor Riches, President and CEO of the Goldwater Institute. “Prop. 208 violates the state Constitution, and it deprives the people’s elected representatives of their constitutional authority. The Goldwater Institute is taking a stand to challenge the legality of Prop. 208 and to protect Arizona taxpayers against this illegal and ill-conceived measure.”
According to the Goldwater Institute, in the fall of 2020, a group of out-of-state unions and special interest groups placed Prop. 208 on the Arizona ballot to raise taxes by nearly $1 billion. The initiative is likely to drive businesses out of the state and to slow business growth, resulting in the long term in some 124,000 fewer new jobs over the next decade, and a loss of $2.4 billion in state and local taxes.
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“Arizona’s Constitution gives voters the power to pass initiatives, but it also imposes important limits on the initiative power,” said Timothy Sandefur, Goldwater Institute Vice President for Litigation. “In fact, the state Constitution expressly provides that ‘any law which may not be enacted by the Legislature under this Constitution shall not be enacted by the people.’ And the Constitution limits both how taxes may be raised and how government may spend money. Proposition 208, however, ignores or tries to evade these limits.”
The new initiative raises taxes without a two-thirds vote of the state legislature, but through a narrow majority of the voting public instead. In the parts of the initiative governing spending, it declares that money obtained through the new tax increase “are not considered local revenues for the purposes of…[the] Constitution,” and are “exempt” from the Constitution’s spending limits.
But Prop. 208 is not a constitutional amendment, according the Goldwater Institute. It’s an ordinary law—which means it must comply with the state Constitution. And since the legislature could not have adopted language exempting itself from the Constitution’s taxing and spending rules, that means the voters could not do so either.