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REPORT: Arizona Leads In Tax Relief
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30 May 2020   Doug Ducey

Arizona enacted net tax relief during its 2019 legislative session.

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A new report by the American Legislative Exchange Council (ALEC) recognizes Arizona as one of just six states to enact “substantial net tax relief for its citizens” during the 2019 legislative session.

Arizona’s Fiscal Year 2020 budget built on the tax relief passed as part of President Trump’s Tax Cuts and Jobs Act to make Arizona’s code simpler, flatter and more fair. Arizona’s reforms—the most significant of the past 30 years—prioritized middle and low-income earners, increasing Arizona’s standard deductions to $12,000 for individual filers and $24,000 for married filers. For the first time in Arizona, the state standard deduction matches the federal standard deduction, representing a significant simplification of the tax code.

Families are also benefiting from a new $100 child tax credit, as are nonprofits and charities thanks to a new charitable tax deduction that encourages donations to organizations that help those most in need. For the median income tax filer, last year’s tax reform has meant annual relief of roughly $135 after conformity.

“Hardworking Arizonans deserve to keep more of the dollars they earned,” said Governor Ducey. “Since 2015, Arizona has reduced and simplified taxes — while investing in the things that matter. Not only are families and individuals seeing greater tax relief, Arizona continues to increase our competitiveness as the best state in the nation to start and scale a business. My thanks to all our legislative partners for working with us to provide Arizonans tax relief and keep our state strong and competitive."

“As we’ve simplified our tax code and returned more dollars to taxpayers, we’ve seen more growth and opportunity,” said Arizona Representative Ben Toma. “The smart decisions of today will benefit current and future generations of Arizonans for years to come, and I’m grateful to my colleagues and to the Governor for making pro-growth tax reform a priority.”

“Businesses and people from other states continue to move to Arizona for a reason,” said Arizona Senator Vince Leach. “While we are pursuing policies that promote jobs and keep taxes low on families and individuals, other states are taking the opposite approach. Thank you to Governor Ducey and my fellow legislators for leading on this important issue."

Highlights from the study are below:

SIMPLIFYING THE TAX CODE

“Arizona substantially cut personal income taxes by reducing the number of tax brackets from five to four and cut tax rates for nearly every bracket.”

“Arizona and Virginia deserve special mention for enacting exemplary pro-growth tax reforms… Their conformity legislation successfully clarified their respective state tax codes following the landmark federal Tax Cuts and Jobs Act reforms and also returned effective state-level revenue increases back to taxpayers through significant personal income tax reforms."

BROAD-BASED REFORM

“By increasing the state standard deduction to $12,200 and $24,400 for single and joint filers, respectively, removing the second-lowest personal income tax bracket, reducing rates for nearly every remaining personal income tax bracket, and creating a new dependent exemption, Arizona saved income earners an expected $680 million in Fiscal Year (FY) 2020 tax liability compared to the federal tax conformity baseline if Arizona conformed without cutting taxes. Including revenue generating provisions inherent to federal tax conformity, such as effectively eliminating the personal and dependent exemptions, Arizona taxpayers can expect an estimated net $52 million in tax savings for FY 2020 compared to FY 2019.”

A COMPREHENSIVE PLAN

“Arizona went one step further than merely making federal tax conformity revenue neutral. During the 2019 legislative session, Arizona used federal tax conformity as an opportunity to deliver a net tax cut to income earners. First, Arizona matched federal policy by raising the standard deduction to $12,200 and $24,400 for individual and joint tax filers, respectively. Second, Arizona eliminated the second lowest of its five total tax brackets, allowing more income to fall into the bracket with the lowest rate. Third, Arizona lowered personal income tax rates for three of the four remaining tax brackets. Finally, Arizona also established a tax credit of $100 for every dependent under 17 years of age and $25 for every dependent older than 17. Altogether, Arizona’s tax cuts removed an estimated $680 million in FY 2020 personal income tax liability. Factoring in the base-broadening provisions inherent to federal tax conformity and post-Wayfair sales tax increases, Arizona’s conformity legislation is expected to cut $52 million on net from income earners’ FY 2020 tax liability."

ARIZONA OUTPACING OTHER STATES

"This is the Grand Canyon State’s fifth appearance in State Tax Cut Roundup. Only Florida and North Carolina have been featured more often. This demonstrates Arizona’s commitment to pro-growth tax reforms in recent years. A competitive tax code has made Arizona one of the fastest growing states in the country at the expense of neighboring high-tax California and New Mexico. According to How Money Walks, Arizona has gained nearly $12 billion in annual adjusted gross income (AGI) from California and over $850 million in AGI from New Mexico since 1992. As California and New Mexico continue to pass net tax increases while Arizona makes its tax code more competitive, Arizona can expect to see additional economic growth and an increasingly vibrant state economy at the expense of its high-tax neighbors."

View the ALEC State Tax Cut Roundup HERE.