Arizona’s taxation system is structurally imbalanced as the demand for government spending continues to far exceed tax revenue collections. Prior to this Covid recession, there was bipartisan agreement that additional money was needed for education, housing, infrastructure, health care, public safety, and state government. However, the budget was never large enough to accommodate those requests while also maintaining a $1 billion rainy day fund. Arizona’s total
budget is too small for a growing state whose population size is the 14th largest in the country. Higher taxes are required – economic growth alone does not help when tax rates are set too low.
Special interest groups want a dedicated tax to micromanage new education funding for specific programs. Instead, let the state Legislature and governor determine education spending through the appropriations process as it offers flexibility and accountability toward budget and policy – bipartisan support already exists for higher teacher salaries, smaller class sizes, etc. Increased funding for education must mean increasing the size of the state budget and state government.
I propose raising everyone’s income taxes by switching from a marginal tax system to a 4.5% flat tax. This simplifies and modernizes Arizona’s income tax structure by adopting the 2020 top marginal tax rate as the new flat income tax rate for Arizona to increase its budget. Taxpayers in 2020 earning more than $171,200 have a flat tax increase at $1,163.46 since the 4.5% rate applies to their entire taxable income. Minimum wage workers earning $25,000 have a tax increase at $244.48. Salaries at $40,000, $50,000, and $75,000 have tax increases at $521.26, $637.26, and $845.96, respectively. Every calculation assumed a $12,200 standard deduction.
My income tax plan generates well over $1 billion in new tax revenue reliably and sustainably.
The amount of income tax increase for a full-time employee on a weekly paycheck is between $4.70 and $22.37. The automatic payroll deduction allows this income tax increase to be more affordable unlike a lump sum property tax bill. Conservatives will like my flat tax since it has a single tax bracket and keeps a business-friendly environment. Progressives will like my plan as it brings more total tax revenue than either a Proposition 208 income tax or a 1% sales tax increase.
A flat income tax in Arizona (4.5%) is competitive with many flat income tax states, including Colorado (4.55%), Illinois (4.95%), Utah (4.95%), Kentucky (5%), Massachusetts (5%), and North Carolina (5.25%). It is also competitive with many near flat income tax states regarding
full-time employees including New Mexico (4.9%), Alabama (5%), Oklahoma (5%), Missouri (5.4%), Georgia (5.75%), and Idaho (6.925%). States with no income tax charge a higher tax rate on property or corporations or receive significant revenues from oil, gambling, or tourism.
Alabama, Georgia, Idaho, Kentucky, North Carolina, Oklahoma, and Utah each has a minimum wage at $7.25 despite having an income tax rate at 4.95% or higher for full-time minimum wage work. So, Arizona’s minimum wage earners at $12.15 can afford to pay a 4.5% income tax rate. The closely divided Arizona electorate wants practical solutions, not strict ideology. They will support my tax plan as they are willing to pay in an equitable way for more government services. I ask the Arizona Legislature to put my 4.5% flat income tax plan on a ballot for voters to decide.
Sanjeev Ramchandra lives in Phoenix and previously worked as a community college math professor. He can be reached at [email protected]