With a $600 million general fund shortfall - almost 6 percent of the general fund budget - some Arizonans might be tempted with a tax increase. After all, the state recently enjoyed a tax cut. Arizona is a low-tax state, right?
Not exactly. It is true that Arizona's state and local tax burden is below the national average, ranking 31st highest among the states this year according to the Tax Foundation. Still, Arizona's governments take 10.3 percent of Arizonans' income.
The good news is Arizona's tax burden ranking is falling. In 1980, Arizona ranked 12th highest among the states, then taking a whopping 10.3 percent of Arizonans' incomes. Wait a minute--that's the same as today! Turns out state and local tax burdens across the nation are at record levels. We're not doing better in the rankings because we've reduced our tax burden; it's that everyone else's tax burden has increased.
Fortunately, Arizona taxes less than California (11.5%), slightly less than Colorado (10.4%) and Utah (10.7%), and only a little more than Nevada (10.1%). But New Mexico taxes at only 9.8 percent and Texas taxes an even lower 9.3 percent.
So, while our overall tax burden is far from the worst in the country, taxation has effects deeper than the sum of its parts.
The Tax Foundation also looked specifically at states' business tax climates. With number one being the best, Arizona is right in the middle at 25th. Under this ranking, California is at a dismal 47th. But, Nevada ranks 3rd, Utah 17th, Colorado 13th, New Mexico 23rd, and Texas 8th. In our region, Arizona only outranks California.
Business is the engine of an economy's prosperity. And right now Arizona's economic future is too dependent on California's monumental fiscal incompetence. Just being better than California is not a tax or fiscal policy that will ensure economic prosperity in the future.
Dr. Byron Schlomach is the director of the Center for Economic Prosperity at the Goldwater Institute.
Tax Foundation: State and Local Tax Burden Hits 25-Year High
Tax Foundation: 2008 State Business Tax Climate
Council On State Taxation: Total State and Business Taxes