Arizona Lawmakers Approve Historic Tax Relief
Policymakers in Arizona just approved a historic state budget that will allow hardworking taxpayers across the state to keep more of their hard-earned paychecks. The net tax cut of $1.9 billion reduces personal income tax rates to a flat 2.5% for most Arizonans and caps the rate paid by high earners at 4.5%. As a result of this substantial tax relief, Arizona’s economy will be poised for long-term growth.
As Arizona Senate President Pro Tem Vince Leach, Chairman of the ALEC Tax and Fiscal Policy Task Force said, “With this victory, taxpayers will be able to keep more of their hard-earned money, and Arizona will remain one of the best states in America in which to live, raise a family and start a business. Furthermore, the Arizona tax structure will once again encourage more businesses to set up shop here and grow jobs and the economy for all.”
Following the narrow passage of Proposition 208 in November of 2020, Arizona’s top marginal personal income tax rate increased from 4.5% to 8% – a 78% increase – for individuals earning at least $250,000 per year. As a result, Arizona had the 8th highest top marginal personal income tax rate in the nation. This new, higher rate far exceeded the top rate imposed by neighbors Nevada (0%), Colorado (4.55%), Utah (4.95%), and even New Mexico (5.9%).
Neighboring California, which imposes the highest top personal income tax rate of any state at 13.3%, has just lost a congressional seat for the first time in state history, as thousands have fled the Golden State in search of economic opportunity.
Prior to the passage of Prop 208, Arizona was the third largest recipient of former Californians, behind Nevada and Texas, with nearly $12 billion in annual adjusted gross income (AGI) coming to Arizona from California alone since 1992. With high income tax rates, Arizona’s ability to attract new residents and investment had been substantially diminished. That dynamic has thankfully been fixed with the approval of the budget and the significant tax relief it will bring.
According to studies that differentiate between various forms of taxation, income taxes are the most harmful to long-term economic growth.
Because of income tax increases last year, the Grand Canyon State had just fallen out of the top 10 states for economic outlook to its lowest ranking ever (13th) in the new 2021 edition of the Rich States, Poor States: ALEC Laffer State Economic Competitiveness Index.
With this substantial tax relief in place, the Rich States, Poor States “Adjust Policies” tool boosts Arizona to 3rd best overall economic outlook among the 50 states.