State Budgets

Arizona Tax Cuts and School Choice Didn’t Create the Budget Deficit: Jonathan Williams on American Radio Journal

Arizona continues to be a national leader in pro family and pro taxpayer economic policies.

In his latest American Radio Journal commentary, ALEC Executive Vice President of Policy and Chief Economist Jonathan Williams highlights the real reason for Arizona’s state budget deficit.

Arizona continues to be a national leader on pro family and pro taxpayer economic policies. In the past few years, state leaders have achieved several groundbreaking policy victories, including creating a flat tax and significantly reducing personal income tax rates and expanding universal educational freedom for families. Effective in 2023, the state’s flat income tax is now the lowest flat tax in the nation, this is after Arizona had a progressive income tax structure with one of the highest top marginal rates in the nation. Also effective in the fall of 2023, Arizona’s Empowerment Scholarship Accounts were opened to all K-12 students across the state.

With massive victories like these, it’s no surprise that the Grand Canyon State ranks third for Economic Outlook in our ALEC Rich States, Poor States report and 4th in The ALEC Index of State Education Freedom. Arizona’s low overall tax burden and business-and-worker-friendly policy environment has made it an attractive destination for businesses and individuals seeking greater economic freedom and opportunity. According to recently released Census Bureau data, Arizona  gained over 36,000 Americans on net in 2023, continuing its streak as one of the fastest growing states in the nation.

In addition to economic freedom, Arizona is one of the top states for education freedom. In 2022, Arizona adopted universal Education Savings Accounts. These accounts allow parents to receive some of the public funds that would have been used to send their children to public school and use them for their choice of alternative educational uses, such as online education or private school. Arizona and West Virginia kicked off the 2023 education freedom revolution, where an all-time record eight states adopted universal education freedom.

It comes as a surprise, then, to hear that Arizona is coming under attack for these policy successes. In an attempt to weaken limited government and free markets in Arizona, critics have wrongly blamed the state’s budget deficit on the tax cuts and school choice expansion. Governor Katie Hobbs is seeking to weaken education freedom with her proposals for this year’s legislative session. Unfortunately for Gov Hobbs and her allies, the evidence against these policies simply doesn’t add up.

A review of available information on the Arizona Empowerment Scholarship Accounts shows a strong year for the program. Brand new research from the Goldwater Institute finds these ESAs save Arizonans money compared to the costs of enrollment in public school. The average amount parents receive to spend on their child’s education is substantially less than the per-pupil spending at Arizona public schools. The Joint Legislative Budget Committee points to more enrollment in the ESA program than was anticipated. In other words, critics are attacking this program which is more popular than the state planned for and is doing a better job meeting the particular needs of students.

These budget doomdayers are also going after Arizona’s 2.5% flat personal income tax, suggesting it too is contributing to the budget deficit. The fact is the state remains in a strong fiscal position, despite the growth in state spending. Last year, Arizona posted a $1.8 billion surplus, and it still holds another $1.5 billion in its rainy-day fund. Revenue growth is forecasted to be strong for the next three years, no doubt on the back of a strong state economy brought about by enhanced economic competitiveness and education freedom. And of course, Arizona’s budget deficit pales in comparison to states like California (I should add that has no broad-based school choice and some of the highest taxes in America. California lawmakers are grappling with a $68 billion deficit, more than 170 times larger than the one faced by Arizona.

Those demanding a culprit for Arizona’s budget deficit should take a closer look at spending growth including public welfare programs, the biggest category on the state’s spending. Baseline Medicaid spending, which has been found to consistently exceed anticipated costs in states that have expanded Medicaid, is projected to increase dramatically in Arizona in Fiscal Year 2024.

Though free market critics blame Arizona’s monumental free market policy achievements for the budget deficit, the evidence is clear that Arizona and states across the country do not have a shortage of tax revenue, they need to control spending growth. Thankfully education freedom and tax relief for hardworking taxpayers will continue to be a huge boon for the Grand Canyon State.

Listen to the full interview here.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

+ State Budgets In Depth