Arizona was in the national spotlight this week after the state legislature approved the Goldwater Institute’s plan to dramatically reduce income taxes and simplify the state’s tax code, making Arizona one of the lowest-tax states in the country. The Wall Street Journal wrote:
This week Arizona Gov. Doug Ducey will sign a 2.5% flat tax, a moment that will define his legacy. The bill’s passage was worth the political drama and will go far to maintain Arizona’s competitiveness.
Arizona currently taxes income under a progressive rate structure, starting at 2.59% up to 4.5%. The ballot last November carried an initiative to add a 3.5% surtax on earnings above $250,000 for single filers. It narrowly passed, meaning the combined top rate was set to hit 8%, higher than all of Arizona’s neighbors except California. Nevada and Texas have no income tax.
Mr. Ducey’s budget will cut rates for all taxpayers. The Legislature can’t repeal the voter-approved surtax, so above the 2.5% flat rate, there will still be a second bracket on income over $250,000. But the budget also has a provision adjusting the flat tax downward for those Arizonans, so no one will pay a top rate above 4.5%. That’s the same as today...
“Every Arizonan—no matter how much they make—wins with this legislation,” Mr. Ducey said. “It will protect small businesses from a devastating 77 percent tax increase, it ensures working families and all Arizona taxpayers get to spend their money how they choose, and it will help our state stay competitive so we can continue to attract good-paying jobs.” That’s worth celebrating.
As Goldwater Institute President and CEO Victor Riches wrote last week, that this tax reform will mitigate the negative effects of the Prop. 208 tax increase, which otherwise would have had disastrous consequences for Arizona’s economy. The Goldwater Institute challenged the constitutionality of Prop. 208 and is awaiting a decision from the Arizona Supreme Court.