Arizona ranked 3rd in the Economic Performance category of the prestigious Rich States, Poor States report for 2023 by the American Legislative Exchange Council (ALEC). The report highlights Arizona’s impressive economic performance and attributes the state’s high ranking to its “fiscally sound policies, low tax burdens, and welcoming regulatory environment.”
Utah and North Carolina secured the first and second positions, respectively. The worst economic outlooks are in Minnesota, Vermont and New York, which one study says has the country’s most burdensome tax policies.
The report evaluates each state in key policy areas to gauge its economic trajectory. The Economic Outlook category is a forecast based on a state’s current standing in 15 policy variables, while the Economic Performance category is a backward-looking measure based on a state’s performance in three key economic variables. The report finds that states with lower spending and taxation on productive activities tend to experience higher growth rates.
Arizona’s remaining tax burden of $9.65 per $1,000 of personal income is less than the national average, indicating that the state is utilizing its tax revenue more efficiently than other states. Arizona’s tax climate, combined with the implementation of a historic 2.5% flat individual income tax in January 2023, has made it even easier for small businesses to grow in the state. Small businesses file taxes on the individual portion of the tax code rather than at the corporate rate that larger businesses file.
Arizona also performs well in other tax-related variables, such as Top Marginal Personal Income Tax Rate (2.50%, 10th), Estate/Inheritance Tax Levied (No, 1st), and Right-to-Work State. (Yes, 1st), which provides employees the option whether to join or support a union.
However, the state faces challenges in its tax system, as indicated by its rank of 16th in Property Tax Burden and 45th in Sales Tax Burden. The report recommends that Arizona can improve its tax competitiveness by reducing its property and sales taxes.