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Arizona’s Tax Regime Improves But Arizona Ranks High In Other Measures Of Freedom

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Arizona has moved up in rankings determined by the Tax Foundation, but still can’t break into the Top 10.

The Tax Foundation just came out with its 2024 State Business Tax Climate Index.

The bad news is that Arizona does not make it into the Top 10.  The good news is Arizona did move substantially up in the ranks and is getting close.The annual study by the Tax Foundation relates to the “business climate” of individual states relating to their taxing structure.  It looks not only at the level of taxes but the structure of taxes.  Complexity adds to the regulatory burden, that is the additional cost of complying with the tax.

States can vary widely in how they employ the mix of taxes as a source of revenue, such as income taxes, property taxes, corporate taxes, and sales taxes.  Also, many states vary as to the sheer amount of regulatory burden in collecting each of these taxes.  The Tax Foundation ranks all of these taxes individually and then combines them for a final number.

For example, Arizona ranks 9th for personal income taxes, but a low 41st for sales taxes.

Ranking number one overall is Wyoming, which has no state or corporate income tax at all.  Not only is zero a low rate, there is no regulatory burden on a tax that doesn’t exist.

Ranking at the bottom is New Jersey, which has a very high and overly complex tax collection structure.

In the overall ranking of the entire tax structure, here is a list of the Top 10 and the Bottom 10 states relating to taxation.

It is not surprising that the rankings generally follow along the ideological and political lines that you might expect.  More Conservative states rank much higher than Progressive-Liberal states.

Arizona moved up from 19th to 14th but still did not break into the Top 10.

According to the Tax Foundation:

“Arizona transitioned from a two-bracket, graduated-rate individual income tax system with a top rate of 2.98 percent to a flat tax rate of 2.5 percent, becoming one of the 11 states with a flat individual income tax structure. Among those 11 states, Arizona now has the lowest individual income tax rate. This major development helped the state improve seven places on the individual income tax component and five places overall, from 19th to 14th.”

It is worth noting this improvement came under Republican Doug Ducey and barely got done due to slim Republican margins in the legislature.  Elections matter.

Taxes, of course, are not the sole criteria for business climate.  The overall regulatory environment, the quality of the educational system, the cost of energy, the quality and availability of the workforce, the cost of housing, and a general environment of personal liberty, are also considerations in attracting both businesses and individuals.

Note that while geographic climate is a factor, New Hampshire and Wyoming rank very high while California and Hawaii are very low.  Nice weather surely is a plus but not determinative when it comes to business conditions.

Other factors beyond climate are also important and here Arizona does somewhat better. Arizona generally is ranked #2 in school choice behind Florida by the Heritage Foundation. This is leading to improved educational outcomes, less cost to the taxpayer, and an improved workforce.

The Goldwater Institute, however, ranks Arizona #1 in school choice.

Public safety is a factor as well and Arizona  ranks #5 for Second Amendment self-protection rights by Guns&Ammo magazine.  About five years ago, the state was ranked #1 in the nation.

The CATO Institute, a libertarian-oriented think tank just released a study looking at multifarious factors of personal and economic freedom just ranked Arizona # 5 in the nation.

Overall, Arizona is doing pretty well but still could use improvement on the tax front.

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