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Low Tax for Whom?: Arizona is a “Low Tax State” Overall, But Low Income Arizonans Pay 6th Highest Effective Tax Rate in the Nation


Wednesday, October 17, 2018

Low Tax for Whom?: Arizona is a “Low Tax State” Overall, But Low Income Arizonans Pay 6th Highest Effective Tax Rate in the Nation

(Phoenix, AZ) – A new study released today by the Institute on Taxation and Economic Policy (ITEP) and the Arizona Center for Economic Progress finds that the lowest-income Arizonans pay nearly three times more in taxes as a percentage of their income compared to the state’s wealthiest residents.

The study, Who Pays? A Distributional Analysis of the Tax Systems in ALL 50 States, analyzes tax systems in all 50 states. The analysis evaluates all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes. In Arizona, almost three decades of annual tax cuts to mostly income and property taxes have caused increased reliance on the state sales tax to fund state priorities leading to a regressive tax system.

According to the most recent data from the Census Bureau and the Bureau of Economic Analysis, the state and local tax contributions of Arizona taxpayers total 9 percent of personal income. This relatively small share of personal income collected in state and local taxes is 12 percent below the national average, affording Arizona a reputation as a “low-tax state.” But the state tax code is upside-down, that is, it requires taxpayers with the lowest earnings to contribute a larger share of their income in state and local taxes than the wealthiest taxpayers.

Analysis from Who Pays? finds the lowest income 20 percent of Arizona taxpayers – who earn an average income of $11,900 per year – contribute 13 percent of their income in state and local taxes, the sixth highest state and local tax bill for this income group in the country.  Meanwhile, the top 1 percent of households in Arizona – a group with an average income over $1.1 million – contribute just 5.9 percent of their income in state and local taxes. Compared to the rest of the country, Arizona’s state and local tax levy on the top 1 percent is the 12th lowest.

“Arizona’s upside-down tax code is pushing the state’s impoverished taxpayers deeper into poverty. The wealthiest Arizonans have benefited most from our growing economy, but they are not paying their fair share of state and local taxes,” said David Lujan, Director of the Arizona Center for Economic Progress.

Many politicians across the country and in Arizona continue to push for tax policies that reduce tax rates for the wealthy and businesses. But there is a growing movement against this agenda as the public recognizes continual tax cuts for the wealthy and corporations mean less money to adequately fund our children’s education, invest in our community colleges and universities, and other priorities which will strengthen Arizona’s workforce and create thriving communities. “We’ll be talking to our new legislature in 2019 about shifting our tax system to work better for more Arizonans,” said Lujan.

Although voters will no longer have the opportunity to vote on the Invest in Education ballot initiative this November, creating a dedicated funding stream for public education by raising income taxes on Arizona’s highest earners remains a good option for increasing investments in Arizona’s schools while making our tax system more balanced and fair.

There’s also a more practical reason for Arizona and all states to be concerned about regressive tax structure, according to ITEP. If the nation fails to address growing income inequality, states will have difficulty raising the revenue they need over time.  The more income that goes to the wealthy (and the lower a state’s overall tax rate on the wealthy), the slower a state’s revenue grows over time.

“Rising income inequality is unconscionable, and it is certainly a problem that local, state and federal lawmakers should address,” said Meg Wiehe, deputy director of ITEP and an author of the study. “Regressive state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State lawmakers have control over how their tax systems are structured. They can and should enact more equitable tax policies that raise adequate revenue in a fair, sustainable way.”




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