The 2025 Free Enterprise Report from the Common Sense Institute Arizona (CSI) was released Monday and ranked the state of Arizona amongst the states in education as well as the new indexes of economic performance and economic momentum.
According to Katie Ratlief, Executive Director of CSI Arizona, “Arizona continues to lead the way in key areas like tax policy, state budgeting, and educational choice, proving the impact of data-driven, common-sense policies.”
“However,” she added, “challenges in housing, public safety, and homelessness are beginning to slow our momentum. While Arizona remains a top destination for growth, addressing critical issues like crime and the housing crisis will be essential to sustaining our competitiveness. Fortunately, the policies that fueled much of Arizona’s success are still in place, and with a renewed focus on data-driven solutions to address issues like crime and housing, Arizona can solidify its position as one of the most competitive states in the nation for years to come.”
The report details Arizona’s positioning in the emerging recovery of 2025, particularly highlighting the success of the state and its persistent momentum. In an overall measure, the state ranked 27th in “free enterprise competitiveness,” with CSI emphasizing advances in taxes, state budgeting, energy and education, but noting the heavy limitations imposed by housing shortages and rising costs.
In education, Arizona ranked second in the nation in share of students enrolled in school choice options, seemingly ratifying the state’s first-in-the-nation universal Empowerment Savings Account (ESA) program which now provides financial support to over 83,000 families.
Arizona is leading the charge in school choice. Arizona ranks 2nd in school choice enrollment and 1st in education spending efficiency, according to CSI's 2025 Free Enterprise Report. While there's still room to improve graduation rates and test scores, the future of education in… pic.twitter.com/JNK1pbEOwC
— Common Sense Institute Arizona (@CSInstituteAZ) January 13, 2025
The report noted, “Arizona today has the most open K-12 educational market in the country, and hosts a diverse network of District, Charter, and private school options. Since the pandemic, its home- and microschool space has expanded rapidly. Today, about a third of Arizona’s K-12 students are not enrolled in the traditional District school system.”
The report also highlighted Arizona’s Energy situation, noting in a post to X, “Arizona remains a top 20 state for energy competitiveness, boasting one of the most reliable electricity grids in the nation.”
Arizona remains a top 20 state for energy competitiveness, boasting one of the most reliable electricity grids in the nation. Learn more about the state's energy competitiveness in CSI's 2025 Free Enterprise Report.
— Common Sense Institute Arizona (@CSInstituteAZ) January 14, 2025
CSI explains, “Thanks to maintaining the nation’s largest nuclear power plant and the moderate and deliberate pace of adoption of wind and solar energy sources (supplemented by robust investment in natural gas), the state’s electrical grid remains reliable and affordable.”
Finally, Arizona’s advantageous tax system was highlighted with the 2.5% flat income tax and property tax instant depreciation of business investments cited in particular for contributing to an extremely competitive tax and regulatory system. Arizona ranked 7th in the nation on the Taxes & Fees Competitiveness Index.
The report observed, “Arizona has significantly reduced its tax burden in recent years, most notably by adopting a 2.5% flat personal income tax rate. This reform cut the top marginal tax rate from 4.5% to 2.5%, simplifying the tax code and making Arizona one of the most competitive states for income taxation.”
Looking to the future, CSI pointed to the steps Arizona legislators have taken to insulate the state against capricious tax hikes, explaining “this tax structure is well protected. Rules requiring supermajorities for statewide tax increases by the State Legislature were extended in 2022 to initiatives and referendums that would have voters approve the tax increases.” The report continues, “Arizona’s competitive ranking for its tax structure is not only unlikely to get worse but may improve (even if further reform is more incremental) due simply to the relative erosion of the position of other states that lack these structural protections.”
The Town of Gilbert is the target of a lawsuit by the Goldwater Institute on behalf of the Home Builders Association of Central Arizona and a local property owner, Jonathan Barth, for allegedly violating the Arizona Constitution which bans tax increases on “services.”
According to Goldwater, the tax increase imposed by the Town of Gilbert includes “many types of business that do not produce tangible goods, such as advertising, photography, utilities, hotel/lodging, and construction.”
Goldwater is challenging two of the tax increases in particular: on homebuilding and short-term rental properties.
Lawsuit Alert: The Goldwater Institute challenges Gilbert’s illegal pickleball tax.
Gilbert officials are hiking taxes to fund pickleball courts, splash pads, and even a ropes course—all in violation of the Arizona Constitution. Here’s what you need to know: 🧵
As noted in the text of the lawsuit, the Arizona Constitution prohibits “any county, city, town, municipal corporation, or other political subdivision of the state, or any district created by law” from creating any new or increasing any existing transaction-based taxes on the “privilege to engage in, or the gross receipts of sales or gross income derived from, any service performed in this state.”
The new tax ordinance in question, per the Town of Gilbert’s website, imposes a 0.5% increase in the existing sales tax and creates a “use tax” to be “paid for by residents and businesses when purchases are made online with out-of-state vendors who do less than $100K of sales in Arizona per year.”
The lawsuit explains that, “As a result of the Ordinance, individuals, businesses, and taxpayers, including Plaintiff Jonathan Barth, who engage in the rental or lease of real property, including for transient lodging, will pay a higher tax rate for the services they perform. Additionally, individuals, businesses, and taxpayers that engage in general contracting services, including the members of Plaintiff Home Builders Association of Central Arizona (“HBACA”), will pay a higher tax rate on the services they perform.”
Barth, an educator and father of five, will be impacted because he earns supplemental income by managing his detached bungalow as a rental for short-term tenants. He told Goldwater, “This tax hike makes it all the more difficult to make ends meet in Gilbert.”
Former Mayor Brigette Peterson and all of the members of the Town Council are named as defendants in addition to the town itself.
The town allegedly intends to use the projected $55 million yield of this new tax for “Critical Infrastructure Projects,” adding that “Time is of the essence as many of Gilbert’s services are over capacity and new infrastructure is needed.”
The Goldwater Institute has found however, that these “Critical Infrastructure Projects,” include pickleball courts, splash pads, a ropes course, and a “statement” bridge.
The Home Builders Association of Central Arizona (HBACA) told Goldwater that the new taxes will result in increased construction costs in the town as well. HBACA CEO Jackson Moll warned, “Gilbert officials are trampling on their own constituents’ rights with no regard for the consequences their illegal actions will have on taxpayers and homebuyers. The Arizona Constitution is clear: increasing taxes on services, including on construction contracting, is unlawful.”
As previously reported by AZ Free News, the Goldwater Institute pursued a similar action against the Town of Payson in September when the Town Council decided to incur a $70 million debt via a bond measure without a public referendum.
Arizona Republicans highlighted their state’s low tax rate after a recent signing of a baseball star with the hometown team.
Late last month, Corbin Burnes, a free agent pitching star, decided to sign with the Arizona Diamondbacks, shocking most onlookers, who had predicted that he would likely end up with another Major League Baseball suiter.
One report shared that Burnes made his decision based on Arizona’s lower tax rate. Burnes had been wooed by the Toronto Blue Jays and San Francisco Giants – two jurisdictions with significantly higher taxes than the Grand Canyon State.
Corbin Burnes turned down more money per year and overall but the big benefit in addition to the $35M per year, low state tax in Arizona and opt out after two years is he and his young family live in the Phoenix area. @BNightengale said CB had bigger offers from SF and Toronto
Former Arizona Governor Doug Ducey added, “I’ll be looking forward to watching Corbin Burnes in a Dbacks jersey next year – and very glad to see that Arizona’s lowest flat tax in the nation is what brought him to AZ! Sorry Gavin Newsom [&] Justin Trudeau!”
I’ll be looking forward to watching Corbin Burnes in a @DBacks jersey next year — and very glad to see that Arizona’s lowest flat tax in the nation is what brought him to AZ!
Burnes had been reportedly offered more money by the aforementioned teams before deciding to ink a deal with the Arizona Diamondbacks.
According to a post on X, the top tax rate in California is 14.4%, and the top federal and provincial tax rate in Toronto, Ontario is 53.53%. Arizona’s tax rate is 2.5% in comparison.
Arizona owes its low tax rate to the work of Governor Ducey and legislative Republicans, who enacted the transformational tax bracket in 2021.
Two staunch free-market advocates, Tim Phillips (President of Americans for Prosperity) and Grover Norquist (President of Americans for Tax Reform), wrote a piece in Newsweek, praising the accomplished feat of the Arizona Legislature, spearheaded by State Senator J.D. Mesnard and Ducey. They stated, “Arizona, on the other hand, provides a good example: lower the tax rates to let people keep more of what they earn and invest in what they care about most. Limit government spending to grow no faster than the incomes of the citizens who pay the taxes. Create a magnet for job-creating investment and hardworking Americans who simply wish to be left alone to work hard, take care of their families and support their communities.”
Phillips and Norquist added, “The Arizona reform is a positive model and one that should be followed by other states and the federal government.”
When the Arizona Supreme Court gave the green light for these tax reforms to go into effect, Arizona Free Enterprise President Scot Mussi said, “Today’s decision from the Arizona Supreme Court is a big win for taxpayers in our state. The legislature passed historic tax cuts last year that benefit all Arizona taxpayers. It’s time for Invest in Arizona and out-of-state special interest groups to accept this reality and stop making a farce of the referendum process.”
Mesnard touted the progress of his historic legislation in a campaign newsletter in January 2023, saying, “The historic tax reform that I championed in 2021 is now in effect for income earned this year – a full year ahead of schedule thanks to strong government revenues. Valued at more than $2 billion, this reform reduced individual tax rates to 2.5%, resulting in a tax cut for every single Arizona family and Arizona having the lowest flat tax in the nation.”
Daniel Stefanski is a reporter for AZ Free News. You can send him news tips using this link.
Arizona renters and landlords alike will get to breathe a sigh of relief this month when the Transaction Privilege Tax (TPT), applied by cities to rental payments every single month, is eliminated. While the cities that will no longer enjoy this source of tax revenue and lobbying groups like the League of Arizona Cities and Towns cry foul, local Republicans who pushed for the reform and the renters who pay it are celebrating.
Seventy-five cities across the state charge TPT on rentals ranging from 1.5% to 4%. Depending on rental rates, this could mean monthly savings of about $20-$50 per month based on estimates.
In a statement posted to X in November, Arizona Senate President Warren Petersen touted the tax elimination writing, “Its happening. Renters are about to get relief from the rental tax repeal passed by the Republican led legislature. The rental tax repeal was an important part of our majority plan to deliver inflation relief. To get the governors signature we had to delay the effective date to Jan 1 2025. Many people said the Dems would take the majority and put the tax back in place. Fortunately for renters we held the Senate and the House. Here is an email from a property manager letting the tenants know their rent will be going down.”
Its happening. Renters are about to get relief from the rental tax repeal passed by the Republican led legislature. The rental tax repeal was an important part of our majority plan to deliver inflation relief. To get the governors signature we had to delay the effective date to… pic.twitter.com/1qnhGWEa93
Jake Beeson of Beehive Property Management told AZFamily, “It’s going to mean quite a bit for some tenants. We work with the Community Housing Partnership as one of our clients, which has low-income housing, and those rents are between $900 and 1,000 a month. So for a low-income family to have a 2% discount every month doesn’t sound like a lot, but if you’re paying $900 in rent every month, that’s $18. $18 is a whole month of discounted lunches at your kid’s school.”
The outlet noted that the rates in the valley can range from 2% in Mesa to 2.3% in Phoenix or 3% in Cave Creek. Some cities charge as much as 4%.
But not everyone sees the rental tax relief as a positive. Lee Grafstrom, a tax policy expert with the League of Arizona Cities and Towns told Fox10, “You’re not cutting any of the services that citizens are requesting and requiring, so, we still have to do all the same amount of work. We just have this much less money to do it.”
He stressed that cities could find themselves in budget shortfalls, expecting a combined loss of $230 million in tax revenue annually.
“We have to find a way to either cut services or make up that shortfall,” Grafstrom told Fox10. “This is a minor piece of a solution to a much larger problem, in terms of housing affordability.”
The League said in a statement, “Cities and towns across the state are facing a loss of over $230 million in their budgets, which support essential services like police, fire, parks, and more. Without state funding to make up for these losses, local governments will be forced to make tough decisions to balance their budgets, such as cutting jobs and services or raising local taxes—both unpopular choices. Local leaders are working to address these challenges before the repeal takes effect in January.”
Congressman David Schweikert (R-AZ-01) offered his fellow Congress members a gift in his weekly speech on Thursday. The former Arizona State Treasurer and nation’s de facto accountant presented solutions to the problems “that directly contribute to rising costs and decreasing wages in America.” In a press release last week, Schweikert shared video of his speech in which he points out the Consumer Price Index (CPI) for November reflected a 2.7 percent price increase from November of last year, indicating continuing inflation while wages continue to stagnate.
The Arizona Republican stressed the need for Congress to pursue a modernized immigration approach based on talent and merit in 2025, which promotes both productivity and wage growth while simultaneously offsetting declining birth rates and population decline.
Schweikert explained, “Here’s the reality: if the president is looking at you in the camera, and telling you [we have] the best economy ever—that’s not factual—but why don’t you feel it? It’s because much of America is poorer today than the day President Biden took office. If you live in the Phoenix-Scottsdale area—my home—if you don’t make 27 percent more today than the day President Biden took office, you are poorer.
Having someone telling you, ‘Oh, the economy is great,’ and yet, you’re having trouble paying for things… The reason we made this board, functionally, for you to maintain your purchasing power. If you are an average American in my district, these numbers are substantially higher because I am from a district with some of the highest inflation in America. If you are not making $1,115 more a month—because that’s what you have to be [making] from four years ago—your purchasing power… you’re poorer.
And I think that’s the reason that voters turned and said, ‘Okay, I see these Democrats running lots of ads saying crazy things,’ but yet, it turns out the voters are actually really smart. They would look at their checking account. They’d look at the cost of their kids’ clothes. They’d look at the grocery store and try to figure out why in the last week of the month they were losing their minds under stress.”
WATCH:
The congressman stressed the incoherence of current immigration policy, which invites foreign nationals into the U.S., educates them in our institutions, and then ships them back to their home countries rather than encouraging skilled legal immigrants to become citizens. In the release, Schweikert notes, “When wages go up, we actually take in more tax receipts and then begins the cascade event of changing society and the economy for the future and the better.”
Regarding reforming the tax code to favor research and development and immigration laws to favor talent-based immigration, he posited, “One of our economists is trying to model what would happen if you said we’re going to do expensing of research and development because we know that pops economic growth. But if you also did talent-based immigration at the same time, you may get a multiplier effect. This is thinking like an economist. This is what we have to do to get ourselves out of this hole.”
The Maricopa County Board of Supervisors’ Public Safety Funding Committee (PSFC) presented its findings last week and has recommended that it pursue a 20-year extension of the existing voter-approved tax rate of 1/5th of a cent, set to expire in 2027. It also recommended the expansion of various partnerships to address the funding needs of adult and juvenile correctional facilities, correctional healthcare, and other county programs.
According to a press release from the Board of Supervisors, Chairman Jack Sellers said, “Providing for public safety is a core function of our government, and how we fund those efforts should be transparent and open to public feedback. We established the PSFC to ensure a wide range of views are considered as we determine how to prioritize and pay for evolving public safety needs. I’m grateful for the committee’s diligent work and look forward to a thorough review of their recommendations.”
The committee, established in January, conducted a series of public hearings, toured existing jail facilities, and interviewed several figures within the system before brining its recommendations for long-term funding and other changes to several established policies.
The Board of Supervisors largely appeared to concur with the recommendation to extend the funding, with Supervisors Clint Hickman, Bill Gates, and Steve Gallardo voicing support. Hickman said, “The Jail Excise Tax brings in about $300 million in revenue per year and has been an effective way of funding our public safety needs as the county grows, at a low burden to the individual taxpayer.”
He added, “I agree with the committee’s recommendation that an extension of the tax, at the current rate, is the best way to make sure we continue to live in a safe community where people can thrive economically.”
The 165-page report detailed policy recommendations touching “Reentry, Community Services and Coordination, Programming and Courts, Capital, and Data and Long-Term Initiatives.”
The Committee explained:
“In the first category, they suggested pursuing partnerships for crime prevention and reentry, engaging with the state on Medicaid waivers for pre-trial and pre-release individuals, and engaging in efforts to strengthen the behavioral health system.
The second category focused on maintaining funding for probation and diversion programs, upholding treatment standards, coordinating Initial Appearance Hearings with the City of Phoenix, and discussing juvenile placement policies.”
In addition it recommended replacing outdated facilities, improving the county’s Intake, Transfer and Release facility, enhancing security at the Durango campus, and addressing shortages in the county’s correction workforce.
Vice Chairman Thomas Galvin noted, “The PSFC engaged with residents and key stakeholders honestly and openly over the past year, and now with their recommendations, we can move forward in a united manner to keep our streets safe and support our law enforcement officers.
Chaired by John Lewis, the former mayor of Gilbert and CEO of East Valley Partnership, the committee is composed of nine community members from fields ranging from law enforcement, correctional health, criminal justice, government, and business.
As noted by KTAR News, the Board of Supervisors may agree with the extension of the Jail Excise Tax, and could lobby for it, but it has very little choice in the matter. Ultimately Maricopa County cannot place it on the ballot. That power falls to the Arizona Legislature and the sitting governor to pass and sign into law.
Given the past disconnect between the Republican-dominated Arizona Legislature and Democrat Governor Katie Hobbs, it is uncertain how successful any effort to extend an existing tax would be, or how well received it would be by the voters.
