Arizona Proposition 208, the Invest in Education Act, was a 2020 ballot measure that imposed a 3.5% income tax surcharge on high earners to fund public schools. Voters narrowly approved it, but it never produced the roughly $827 million a year it was projected to raise. The legislature capped combined income tax rates in 2021 so no new money was collected, and a Maricopa County Superior Court judge struck the measure down as unconstitutional in March 2022.
What the Surcharge Was Supposed to Do
Proposition 208 added a 3.5% surcharge on taxable income above $250,000 for single filers and married individuals filing separately, and above $500,000 for married couples filing jointly and heads of household.1Joint Legislative Budget Committee. Ballot Proposition 208 Invest in Education Act Fiscal Analysis The thresholds applied to taxable income, not adjusted gross income, so the actual earnings level at which a taxpayer crossed the line was higher than the raw numbers suggest once Arizona deductions were taken.
Arizona’s top marginal rate at the time was 4.5%. Stacking the surcharge on top would have produced a combined top rate of 8% on income above the thresholds. The Joint Legislative Budget Committee estimated roughly $827 million in first-year revenue, all deposited into a new Student Support and Safety Fund.2Joint Legislative Budget Committee. Ballot Proposition 208 Invest in Education Act Fiscal Impact Summary
The money was earmarked by formula. After administrative costs, 50% went to hiring and raising base pay for teachers and classroom support staff, 25% to counselors, nurses, and classroom aides, 12% to career and technical education, 10% to mentoring programs for teachers in their first three years, and 3% to boost scholarships at the Arizona Teachers Academy.
How the Legislature Neutralized It
Arizona’s Voter Protection Act generally bars the legislature from repealing or amending a voter-approved initiative unless the change furthers the measure’s purpose and clears both chambers with a three-fourths supermajority. Lawmakers did not try to repeal Proposition 208 directly. They passed two bills in 2021 that drained it without touching its text.
SB 1827 created an aggregate individual income tax rate cap of 4.5% for tax years beginning January 1, 2021, counting the standard rate and the Proposition 208 surcharge together.3Arizona Legislature. SB1827 House Bill Summary Because the pre-existing top rate was already 4.5%, the surcharge could not push an affected taxpayer any higher. The standard rate was reduced to make room for the surcharge, and net new revenue for schools came to zero.
SB 1828 restructured the entire income tax code, replacing four graduated brackets with a flat tax that would ultimately reach 2.5% of taxable income.4Arizona Legislature. SB1828 Senate Fact Sheet The transition was tied to state general fund revenue thresholds, with an interim two-bracket structure at roughly $12.8 billion in collections and the full flat rate at about $12.98 billion. The 4.5% combined cap stayed in place for anyone subject to the surcharge, so the surcharge simply filled the gap between 2.5% and 4.5% instead of generating extra money for the Student Support and Safety Fund.
The Constitutional Spending Cap Problem
A separate problem was moving through the courts at the same time. Arizona’s Constitution sets an aggregate expenditure limit on what school districts can spend from local revenues each year. The cap is anchored to fiscal year 1979–80 spending, adjusted for enrollment and cost of living, then multiplied by 1.10.5Arizona Legislature. Arizona Constitution Article 9 Section 21 The legislature can authorize a one-year override only by a two-thirds vote in each chamber.
In Fann v. State (2021), the Arizona Supreme Court ruled that money raised by Proposition 208 counted as “local revenues” subject to this cap. The proposition had tried to label its payments to districts as “grants” exempt from the spending limit, and the court found that label unconstitutional. The justices did not strike the whole measure down at that point because the record did not yet establish whether the new revenue would actually push districts past the limit. They sent the case back to Maricopa County Superior Court with instructions: if the surcharge revenues would cause districts to accumulate money they could not legally spend, the lower court was to declare Proposition 208 unconstitutional and permanently enjoin it.6Superior Court of Arizona. Superior Court of Arizona Ruling on Proposition 208
The Ruling That Ended Proposition 208
On March 11, 2022, a Maricopa County Superior Court judge followed the remand instructions and struck down Proposition 208 in its entirety. The judge found that the surcharge revenue allocated to school districts would exceed the constitutional spending limit, creating an unconstitutional accumulation of money the districts could not legally use.6Superior Court of Arizona. Superior Court of Arizona Ruling on Proposition 208 Because the Supreme Court had already held that the funding provisions were not severable from the rest of the measure, the whole proposition fell.
In practical terms, Proposition 208 had already been dead since SB 1827 took effect. The ruling made the legal status match the fiscal reality.
Where Things Stand Now
Arizona’s individual income tax is now a flat 2.5% on all taxable income, regardless of filing status or income level.7Arizona Legislature. Arizona Revised Statutes 43-1011.01 – Taxes and Tax Rates The Student Support and Safety Fund never received the surcharge revenue it was designed to collect. The $827 million a year that supporters projected for teacher pay, support staff, and career education programs did not reach schools through this mechanism.