Arizona Republicans are working on a tax plan that would reduce and maybe even phase out the state income tax. This would be a huge win for all Arizonans.

Arizona is experiencing a $3.9 billion surplus for FY 2022, $1.2 billion of which is projected to be ongoing. Rather than using that money to grow government, Gov. Doug Ducey, Sen. J.D. Mesnard, President Pro Tem. Vince Leach, Majority Leader Ben Toma, and many others want to give it back to taxpayers in the form of pro-growth income tax relief. 

“Arizona’s leaders understand that surplus revenue belongs to Arizona taxpayers. It is not a slush fund for politicians,” explained Grover Norquist, president of Americans for Tax Reform. “Surplus dollars belong to the hardworking taxpayers. Gov. Ducey, Sen. Mesnard, Sen. Leach, Rep. Toma, and many others are doing the smartest thing that can be done in this situation – returning the money back to Arizonans in a manner that also makes the state tax climate more competitive and conducive to growth. Letting taxpayers keep more of their own money and setting up the state for economic success is a huge victory for everyone.”  

Arizona’s current income tax is not competitive. Its top rate of 8% is one of the highest in its region and the entire country. Making matters worse for Arizona, as people and jobs continue to move out of high tax states and into states that do not impose income taxes, more and more states are looking to put their income taxes on the path to zero. This growing movement will make Arizona even less competitive in the coming years.

Fortunately, the Republican tax plan – particularly if it includes a full phase out of the income tax – would turn things around for Arizona, making it a national model for other states to copy. As currently written, the plan would:

·         Streamline Arizona’s current 4-bracket income tax (5 brackets when considering the Prop 208 “surcharge” of 3.5% that will be imposed on certain income, giving Arizona a top rate of 8%) into a flat tax of 2.5%, lower than Arizona’s current bottom rate of 2.59% (technically it would have 2 brackets with the Prop 208 “surcharge,” but the plan includes an aggregate cap to ensure the top rate is not higher than 4.5%).

·         Couple the standard deduction to inflation.

·         Quadruple the child tax credit.

*There is also a serious effort to include a full phase out of the income tax. This would be accomplished through the use of revenue triggers, a responsible way for states to provide tax relief without the need to cut spending or raise other taxes, and without the risk getting ahead of their ski tips. The rate would only be reduced when excess revenue is available to “pay for” it.

The Republican tax plan would be a huge win for all Arizonans. Reducing and eliminating the income tax would attract businesses and investment to the state, bringing new jobs and opportunities for current Arizona residents. It would allow small businesses, which overwhelming pay income taxes on the personal side of the code, to invest more in higher wages. And it would allow individual taxpayers and families to keep more of their hard-earned money.

Stay tuned for more details.