Arizona Capitol Museum by Taylor Arrazola is licensed under CC BY-SA 3.0

Arizona will close the 2024 fiscal year with a significant revenue surplus, it was recently reported. State revenue collections came in $600 million above projections, including a $248 million increase in June alone. This revenue surplus should provide state budget writers with peace of mind amid concerns of an oncoming recession, but it also proves wrong those who predicted budgetary doom and gloom as a result of the tax reform enacted by former Gov. Doug Ducey (R-Ariz.), which gave Arizona a 2.5% flat income tax, the nation’s lowest.   

In 2021, when Gov. Ducey and GOP legislators enacted tax reform that used revenue triggers to get the state income tax rate down to 2.5%, Democrat legislators and progressive activists argued that the tax cuts would hinder growth and lead to budget instability. 

 “Arizona already has some of the lowest income tax rates in the country so it isn’t really going to move the needle in terms of economic competitiveness, and actually what it’s going to do is drain revenues about $2 billion a year,” said David Lujan, head of the Arizona Center for Economic Progress, at the time.  

“The #AZLEG is poised to cut $1B+ in revenue by enacting a flat tax,” tweeted Phoenix mayor Kate Gallego,” who added that it “would be a devastating blow to cities.” Such critics have fallen silent now that Arizona’s revenues have surpassed expectations. 

In addition to unexpectedly high revenues, Arizona continues to experience relatively strong economic and population growth. Arizona’s population increased by 115,900 from July 2022 to July 2023, translating to a 1.6% increase. The State’s economy continued to add jobs, with Arizona creating approximately 64,700 jobs in 2023, reflecting a growth rate of 2.1%. Personal income in Arizona has also risen significantly, increasing 6.5% in 2023 and 4.9% in 2022.

Arizona is one of a number of states that has moved from a progressive income tax system to a flat income tax in recent years. A flat tax is now on the books or being phased in 14 state states, up from nine only a few years ago. Indeed the flat tax revolution now taking place is, along with the expansion of school choice in many states over the past few years, is one of the most significant state policy trends of the past decade.