Strong economic growth ensures Arizona in 2023 to have nation’s lowest flat tax

Arizona’s state income tax rate beginning January 1, 2023 will be a flat 2.5%, one year earlier than originally anticipated. Gov. Doug Ducey announced the news in a statement last Thursday. “It’s time to deliver lasting tax relief to Arizona families and small businesses so they can keep more of their hard-earned money,” he said.

The governor said the new lower rate is the result of the state’s historic revenue and “unprecedented economic growth.” Indeed, the state is forecast to have a budget surplus of more than $4 billion by 2024, and the Arizona economy is ranked #1 for economic performance.

“I signed a historic tax reform package that secures the lowest flat tax in the nation, reduces every Arizonans’ tax rate no matter their income, eliminates income taxes on veterans’ military pensions, increases the charitable contribution deduction 100 percent, and protects small business from a… tax increase,” Ducey said.

House Majority Leader Ben Toma, who led the legislative push for the flat tax’s passage, said that robust state revenue “enabl[ed] the implementation of a single flat rate of 2.5% a year earlier, providing Arizonans with significant economic relief when they need it most.”

The state’s business community is applauding the decision. 

“Gov. Ducey promised on day 1 of his campaign that he would make Arizona the No. 1 state to live, work, and start and run a business – all while reducing the state income tax to as close to zero as possible,” Arizona Chamber of Commerce & Industry President and CEO Danny Seiden said. “Today, eight years later – and a year ahead of schedule – Arizona will officially have the lowest flat tax in the nation when we ring in 2023.”
Seiden lauded the governor and state Legislature for their work in 2021 to pass a historic tax reform package that slashed rates for every Arizona taxpayer and set in motion the phased-in 2.5% flat rate, which is the lowest among all other states with an income tax. He called the news of the single flat rate’s early implementation “a win for taxpayers, small businesses, and every Arizonan who finds themselves spending more than ever amid unprecedented inflation.”