Meanwhile, the top tax bracket was supposed to see its rate increase to 8 percent, thanks to a ballot measure that voters passed last year that would have increased the current 4.5 percent rate by an additional 3½ percentage points to fund education. Instead, state lawmakers will keep that top rate at 4.5 percent through a complicated procedure that does not violate the voter’s will. It also cuts tax rates for business-owned property, giving corporations a share of the state’s largesse as well.
Republican leaders are crowing that this will increase Arizona’s economic growth rate, and they might be right. Large businesses won’t relocate on the basis of this bill, but individuals and families looking for lower costs of living might. Middle-income households in California face marginal state tax rates of between 4 and 8 percent, and families earning more than $115,648 pay a 9.3 percent marginal rate in the Golden State. These people would save thousands of dollars in taxes a year by moving across the Colorado River, and they would likely pay much less for a house, too. In the post-pandemic age of working from home, that difference could turn what is already a migration flood into a tidal wave.
The bill’s political effects could be as important as its economic ones. Middle-income Arizona newcomers looking for lower taxes are likely to be open to Republican economic priorities, especially on taxes. Older retirees who might come are even more likely to be Republicans, given that older, White Americans tend to lean strongly toward the GOP. President Biden carried Arizona by a mere 10,457 votes. It won’t take many new Republicans to paint the state red again.
The tax cut could also win back some of the educated, affluent suburbanites whose defection from the Republican Party is what made Arizona marginal to begin with. The exit polls tell the story: In 2012, Mitt Romney won Arizona voters with a college degree by 18 points. In 2020, Donald Trump won those with bachelor’s degrees by only 1 point even as he ran only slightly behind Romney among voters of all other education levels. If Republicans can increase that by just a few points in 2022 and beyond while keeping ground everywhere else, Democrats can’t win statewide. A big tax cut that provides its largest benefits to families making more than $100,000 is exactly the sort of appeal to the bottom line that might do the trick.
Republicans also have the benefit of being able to say that Democrats unanimously opposed the tax cut. Democrats argued that the state couldn’t afford a cut of this size and that funding for public services such as education would eventually suffer. That’s what happened in Kansas, where a large tax cut passed in 2013 failed to bring promised growth and forced cutbacks in public spending. Arizona Democrats are banking on the happening again, allowing them to reap political benefits similar to those earned in Kansas. Affluent suburbanites in Kansas City’s Johnson County, which gave Mitt Romney a 17-point win in 2012, deserted the GOP in droves. By 2014, then-Republican Gov. Sam Brownback carried the once-solidly red suburban county by about one point. In 2016, eight moderate Republican challengers defeated Brownback loyalists in state House primaries. These and other moderate Republicans joined with Democrats in 2017 to override Brownback’s veto and repeal the tax cuts.
But Kansas may not prove to be a harbinger for Arizona. Arizona has a structural budget surplus of nearly $900 billion, allowing it to finance the tax cuts mostly out of forgone revenue. The state is already growing quickly, adding 2.2 percent to its population in 2019 alone. This should produce annual increases in nominal revenue, whereas state revenue in Kansas decreased in the aftermath of the tax cut and stayed below pre-cut levels until the cuts were repealed. In other words, Arizonans might be spared significant cutbacks in spending as they enjoy their tax cuts. Advantage: Republicans.
Ducey and Arizona’s Republican Party deserves credit for taking this bold move. If it succeeds, expect other Republicans throughout the country to follow suit.