Arizona must choose the right path on tax policy

By Stephen Slivinski

On March 12, the state senate in Oklahoma passed a bill that would immediately turn the state’s income tax into a flat tax, cut the tax rate in half, and strip away the extraneous tax credits and special carve-outs. Then, over a 10-year period, it would slowly phase the income tax out of existence by cutting the rates each year until they reach zero.

Meanwhile, in Arizona, special interests filed a ballot initiative for November that would extend the “temporary” sales tax increase passed by voters in 2010. Additionally, the initiative will lock-in automatic future increases in education spending, burdening taxpayers with ever-higher tax bills. Passage of this initiative will also guarantee that Arizona’s average state and local sales tax rate remains the second highest in the nation.

There is another path, however. The Speaker’s “jobs bill” (HB 2815), which has already passed the House, would eliminate the capital gains tax in Arizona, something no state with an income tax has yet done. In addition, the House has also passed HB 2123, which creates a tax-reform commission that will consider proposals to eliminate the income tax altogether, and issue recommendations by October.

This year, voters and policymakers will have a clear choice on what path tax policy in Arizona should take. Should we choose the path of high tax rates, a tax base with all sorts of special carve-outs, and business as usual at the Capitol? Or should we choose the path that lowers tax rates, makes the tax code more sane, and sets the state up for robust job growth and entrepreneurial activity that could make the state an economic powerhouse?

The choice is clear. Oklahoma has taken its first step down the right path. Arizona should too.

Stephen Slivinski is a senior economist with the Goldwater Institute.

Learn more:

Wall Street Journal: The Heartland Tax Rebellion

Oklahoma State Senate: Statement on the Passage of Tax Reform Bill SB 1571

Goldwater Institute: Unleashing Entrepreneurial Forces: States Can Spark Business Creation, Attract Venture Capital Investment, and Increase Job Growth by Eliminating Taxation of Capital Gains

Goldwater Institute: Investing in Arizona: How the Legislature Can Get Arizona’s Economy Moving Again by Reducing the Barriers to Investment and Job Creation


  1. Conservative American says:

    While it is always great to reduce taxes, there are two sides to the equation; revenues and spending.

    If revenues from taxes are reduced, how do we replace those revenues? The money isn’t going to drop out of the air. If we are going to cut spending to make up for the reduction or elimination of tax revenues, what are we going to reduce or eliminate?

    Both folks in Oklahoma and the American Enterprise Institute are concerned about where adequate revenues are going to come from if state income tax is eliminated.

    “As one way to compensate for the lost revenue, the Oklahoma governor and others have suggested eliminating other kinds of tax breaks and incentives, specifically transferrable tax credits offered to certain businesses. But that would still fall woefully short in Oklahoma, where the income tax provides more than one-third of all state spending.”

    “Still, 23 Republicans in the Oklahoma House have signed up as sponsors of a measure to abolish the income tax over the next decade without raising any other taxes.”

    “Our goal is to transform Oklahoma into the best place to do business, the best place to live, find a quality job, raise a family and retire in all of the United States. Not just better than average, but the very best,” state Rep. Leslie Osborn said.”

    “Lower taxes appeal to many voters, but some wonder how the state could get by if lawmakers abandon a major source of money.”

    “I personally would favor paying less taxes, but to me, it’s like where are we going to make up the difference?” said Steve Schlegel, a bicycle shop owner in Oklahoma City. “I already feel like government is underfunded at the moment.”

    “Roger Garner, a letter courier, said he would accept higher property taxes if it meant eliminating the income tax.”

    “Get rid of it,” Garner said. “Florida doesn’t have it. Texas doesn’t have it. We don’t need it. If something is needed, we can figure out a way to pay for it at the local level.”

    “Conservatives say the lost revenue will be made up by increased economic activity — more businesses paying corporate taxes and more employees paying property taxes and spending money. But economists warn those predictions are unrealistic.”

    “Without creating an alternative funding system, “it’s clearly irresponsible to propose taking action against the income tax,” said Alan Viard, an economist with the American Enterprise Institute, a Washington, D.C.-based conservative think tank.”

    Senator Clark Jolley, author of the Oklahoma legislation, acknowledged that this plan will not be revenue neutral, that it will mean less money to fund government, at least over the short term. Where are the necessary cuts going to be made? Is any shortfall going to be made up for by increases in PROPERTY TAXES? Texas has no state income tax but it’s property tax rates are FOUR TIMES those of Oklahoma!

    Beware! If it sounds too good to be true, it probably is!

  2. Conservative American says:

    “No income tax means higher property tax”

    “Oklahoma faces a revenue shortfall this year and the governor is advocating an immediate reduction in the income tax and its eventual elimination so we can better compete with the state of Texas. Texas does not have an income tax, but the Texas property tax that funds Common School Education is approximately four times higher than Oklahoma’s property tax.”

    “What would you prefer, Oklahoma’s moderate income tax or a very dramatic increase in your property taxes?”

    So you can eliminate income tax but any shortfall may well be made up through higher property and other taxes.

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