Flat Tax & State Budget Facts & Fictions: What’s Really Going on With Arizona’s Fiscal House?
FICTION: The flat tax caused Arizona’s budget deficit.
“Arizona is facing sweeping budget cuts thanks to the exorbitant costs of implementing a flat personal income tax and universal private school vouchers. Enacted one after the other, these policies have led to a nearly $1.6 billion deficit through fiscal year 2025, an eye-popping figure and warning signal for legislators elsewhere.”
FACT: Since the flat tax passed, state revenues have grown by $3.3 billion. But the state budget is 25% larger than it was; at peak spending was up $3.7 billion, and even today it's still up over $2.5 billion versus pre-Flat Tax.. If spending had followed historical trends, Arizona would have had a $4.3 billion surplus rather than a $1.6 billion cash shortfall last year.
Click here to learn more
FICTION: Raising taxes is the only way to restore fiscal stability.
“The flat tax’s $2 billion annual cost has had visible consequences and was a prime contributor to the budget deficits and cuts made during this legislative session”
FACT: The flat tax was forecasted to cost $4 billion over 10 years, but after accounting for dynamic effects and rapid growth in other tax types, estimates suggest a more modest $1.4 billion impact. Meanwhile, revenue growth from a strong economy has more than offset the difference, meaning the state still collects more each year than before the tax cut.
Click here to learn more
FICTION: The flat tax has hurt city budgets.
“Phoenix to increase sales tax to shore up budget shortfall. City getting less revenue because of changes in state law”
FACT: Since 2020, municipal revenue growth has been much faster than expected - about $7 billion today and given current trends , that total could reach $11 billion by 2028 (despite statewide policy changes). The flat tax also temporarily increased the share of state income tax distributed to local governments—from 15% to 18%—providing an additional $250 million over two years to bridge any temporary volatility in this trend. Today, local cash reserves are eight times higher than their historical average.
Click here to learn more
FICTION: Arizona has cut education spending due to the flat tax.
“The tax cuts in Arizona have been accompanied by spending cuts for public programs valued by businesses, such as education and transportation. The state’s business climate has suffered due to these expenditure cuts.”
FACT: K-12 spending is up nearly 80% since 2010, and has grown by 14% since 2022. Spending has kept growing even as enrollment fell and despite Arizona’s per-pupil funding formulas. Policymakers have fully offset enrollment declines with more funding elsewhere, and Arizona now spends more than $15,000 per student, the highest level in state history.
Click here to learn more
FICTION: Tax reforms haven’t helped everyday Arizonans.
“Everyday Arizonans don’t want tax cuts for the rich.”
FACT: The average Arizonan saves about $400 per year from the flat tax—almost a full month of groceries. Meanwhile, per-capita income has risen by 68% since 2015, and Arizona’s economic growth has far outpaced the nation. Without the state’s pro-growth tax and regulatory policies, this generational growth couldn't happen - and the state budget couldn’t be twice the size it was before 2016.
Click here to learn more