As America rebounds from COVID-19, Arizona is among the states experiencing a surge in tax revenue that’s projected to grow in the months ahead. Legislators should continue to strive for responsible fiscal management, especially with a budget surplus of nearly $4 billion projected in fiscal year 2022.
Now is the time for lawmakers to work with the governor on tax reform that reduces the burden on working families, makes our state more competitive, and matches revenues to the highest priorities.
The pandemic has been a traumatic experience for millions of Arizonans. Many have lost loved ones or seen businesses fail. More of us have missed out on work, lost important time in school, or depleted savings and retirement funds. With so many focused on trying to recover stronger, lowering the personal income tax rate can lessen the tax burden for all Arizonans and provide real, long-term relief that our families desperately need and deserve in these challenging times.
Fortunately, leaders in the Arizona legislature are considering reforms that would simplify our state’s tax system and lower the overall burden. This package is being debated as part of the annual state budget.
Arizona now has five personal income tax brackets, ranging from 2.59 percent to 8 percent. Under the plan included in the budget, beginning in 2023 the state personal income tax rate would be reduced to 2.5 percent for most taxpayers except the highest bracket who will pay 4.5 percent.
Under this system, every Arizona taxpayer will see a tax reduction. This change would put more money into the hands of families and allows them to make their own decisions about how their money is used. It would have no effect on the revenue of cities and other local governments, as some critics have charged, since the surplus and improving economy will help keep funding level.
Simplifying and reducing tax rates in this way would also allow small businesses to pay less in taxes so they can keep more of their hard-earned money to grow their business and create jobs. Considering how many have suffered from the pandemic and the policies that accompanied it, this is a great step toward helping them get back on their feet and begin to thrive again.
This is also especially important considering that Proposition 208, which was approved last November, nearly doubles the income tax for many small business owners. The Proposition 208 “surcharge” hurts small business owners precisely when they are trying to recover from the pandemic and grow the economy.
The debate in Phoenix comes at a time when the president and leaders in Washington seem committed to raising taxes and spending in a reckless and damaging way. The New York Times has described the Biden tax proposal as the largest federal tax increase since 1942. Arizona should take a different approach that keeps taxes low and ensures we are much more responsible with our spending.
Instead of holding on to unexpected revenue surpluses and searching for ways to spend it, our elected representatives should examine whether every dollar spent really needs to be spent, and make sure that taxes are no higher than is necessary to pay for that spending. That means adopting prudent and balanced tax reductions when revenues consistently exceed state spending.
Right now, the shortcomings in Arizona’s tax code are keeping our state’s individuals, families, and businesses from realizing their full potential. A flatter and simpler tax system would help unleash growth and remove barriers to opportunity so each of us can improve our lives.
Stephen Shadegg is state director of Americans for Prosperity-Arizona.