Why Arizona Needs A Flat Tax: UPDATED
June 29 2009 20:35 Filed in: Tax Reform | Budget
The Arizona Legislature has recently proposed a flat tax that will make Arizona one of the most competitive tax environments in the country regarding individual income and business taxation.
Of all the states with an individual income tax, if passed, Arizona would have the lowest individual income tax rate in the country.
The benefits of a flat tax are numerous. The first $10,000 for single filers are tax exempt ($20,000 for married couples) and every dollar thereafter of taxable income is lowered from 4.54 percent at the highest rate to a flat rate of 2.8 percent which is less than the current marginal rate that every taxpayer pays regardless of earnings.
As Governor Brewer has said, we need a tax structure that promotes job growth, investment in Arizona and revenue stability for the future.
The Flat Tax does exactly that.
Since Arizona must compete with neighboring states for business, lowering the tax rate will incentivize economic growth as it has in Arizona’s neighboring states. Arizona already competes with Utah and Colorado - neighboring states that already have a flat tax.
Arizona also competes with Texas, which has no personal or corporate income tax (or capital gains tax) and has created more jobs in 2008 than the other 49 states combined. Their stellar economic growth can be chalked up primarily to a low tax burden.
While the flat tax necessitates the removal of deductions, it also lowers the rate for everybody. So while certain taxpayers will not continue to receive specific deductions, the first $10,000 for singles, $20,000 for married couples will be tax free, and the rest that is taxable will be at a much lower rate than the current marginal tax rate.
Additionally, the Legislative proposal will still retain credits for public school extracurricular activities, incomes taxes paid in other states, charitable contributions to help the working poor, clean elections, student tuition organizations and increased sales tax for Proposition 301.
Lowering taxes on Arizona’s workers will attract investment capital and will help create sustainable, high-wage jobs as we have seen in Utah, Texas and Pennsylvania.
We cannot cut our way out of a structural deficit, nor can we tax our way into prosperity. Part of the puzzle includes significant tax reform. The flat tax, coupled with the State Property Tax repeal and reforms to the assessment ratio on business property tax will help give Arizona the tools it needs to weather this storm and grow our way into prosperity once again.
Arizona must jumpstart capital accumulation and job creation through tax reform that fosters economic activity. A flat tax rate will help the state do just that.
UPDATE: The Legislature is running an amendment that will make the starting point for the flat tax the federally adjusted gross income (FAGI). What this means is Arizona’s flat tax will correspond to that of Utah, Colorado, Indiana, Illinois, Michigan and Massachusetts which all start with FAGI as the income tax base. Deductions for items such as educator expenses, tuition and fees, health savings accounts, alimony payments, pension contributions, self-employment deductions, IRA and more will all be deducted from taxpayer’s income.
The Legislature wants to ensure small businesses, students, teachers and those that are investing for their future are not unduly burdened.
Of all the states with an individual income tax, if passed, Arizona would have the lowest individual income tax rate in the country.
The benefits of a flat tax are numerous. The first $10,000 for single filers are tax exempt ($20,000 for married couples) and every dollar thereafter of taxable income is lowered from 4.54 percent at the highest rate to a flat rate of 2.8 percent which is less than the current marginal rate that every taxpayer pays regardless of earnings.
As Governor Brewer has said, we need a tax structure that promotes job growth, investment in Arizona and revenue stability for the future.
The Flat Tax does exactly that.
Since Arizona must compete with neighboring states for business, lowering the tax rate will incentivize economic growth as it has in Arizona’s neighboring states. Arizona already competes with Utah and Colorado - neighboring states that already have a flat tax.
Arizona also competes with Texas, which has no personal or corporate income tax (or capital gains tax) and has created more jobs in 2008 than the other 49 states combined. Their stellar economic growth can be chalked up primarily to a low tax burden.
While the flat tax necessitates the removal of deductions, it also lowers the rate for everybody. So while certain taxpayers will not continue to receive specific deductions, the first $10,000 for singles, $20,000 for married couples will be tax free, and the rest that is taxable will be at a much lower rate than the current marginal tax rate.
Additionally, the Legislative proposal will still retain credits for public school extracurricular activities, incomes taxes paid in other states, charitable contributions to help the working poor, clean elections, student tuition organizations and increased sales tax for Proposition 301.
Lowering taxes on Arizona’s workers will attract investment capital and will help create sustainable, high-wage jobs as we have seen in Utah, Texas and Pennsylvania.
We cannot cut our way out of a structural deficit, nor can we tax our way into prosperity. Part of the puzzle includes significant tax reform. The flat tax, coupled with the State Property Tax repeal and reforms to the assessment ratio on business property tax will help give Arizona the tools it needs to weather this storm and grow our way into prosperity once again.
Arizona must jumpstart capital accumulation and job creation through tax reform that fosters economic activity. A flat tax rate will help the state do just that.
UPDATE: The Legislature is running an amendment that will make the starting point for the flat tax the federally adjusted gross income (FAGI). What this means is Arizona’s flat tax will correspond to that of Utah, Colorado, Indiana, Illinois, Michigan and Massachusetts which all start with FAGI as the income tax base. Deductions for items such as educator expenses, tuition and fees, health savings accounts, alimony payments, pension contributions, self-employment deductions, IRA and more will all be deducted from taxpayer’s income.
The Legislature wants to ensure small businesses, students, teachers and those that are investing for their future are not unduly burdened.