Arizona Should Shed the Income Tax - Three Reasons

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Posted by Hal Smith on Friday, October 16th, 2015, 10:24 AM PERMALINK

1. Removing the Income Tax Would Make Arizona More Competitive

The nation is currently undergoing one of the largest waves ever of interstate migration—taxpayers are fleeing high tax states for states with low taxes. The Arizona Free Enterprise Club recently found that the nine zero-income-tax states gained an average of 3.25 percent of their 2010 population from domestic in-migration over the last decade, while the highest-income-tax states lost an average of 2.05 percent of their population during the same period. Although Arizona ranks as one of the highest beneficiaries of wealth and migration due to its increasingly friendly tax climate, it would increase its national competitiveness if it joined the leaders of job creation and population growth, Florida and Texas, by eliminating income taxes altogether. 

2. Arizona is in the Best Possible Position to Remove the Income Tax

The way consumption vs. income taxes are structured in Arizona makes it possible to eradicate income taxes. The Tax Foundation highlights that Arizona has a 5.6 percent sales tax rate, below the national average, and boasts the 13th lowest individual income tax and the 10th lowest state and local income tax in the nation. According to an ASU study spearheaded by former senior economist Stephen Slivinski, by shifting to a greater emphasis on consumption taxes, Arizona can eliminate personal income tax in six to eight years, without necessarily raising consumption tax rates or widening the sales-tax base. This can occur if lawmakers keep general-fund growth to no more than 2.3 percent yearly and by assuming overall tax revenues grow close to their long-term average.

3. Eliminating the Income Tax Provides Huge Potential for Growth

Florida and Texas are currently experiencing a massive influx of taxpayers and small businesses. The reason: low taxes and no income taxes. These states’ competitive tax code has not only attracted individual taxpayers its business friendly tax climate has also persuaded businesses to set up shop in their growth-oriented environment.

A report by the Heritage Foundation demonstrated that the jobs growth rate was more than double in zero-income-tax states than in high-income tax states when weighted equally.  The fact is business relocation to low-tax states is happening routinely and is accelerating. Arizona already has experienced strong trends in population growth, if it establishes a growth-oriented tax structure, it will be able to unleash its full economic potential.

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