New Report Finds State Budget Deficit Caused By Increased Spending, Not Flat Tax
By Matthew Holloway |
A new report from the Common Sense Institute of Arizona (CSIAZ) has laid to rest claims that Arizona’s budget deficit stems from the state’s adoption of a 2.5 percent flat tax. The report found that the deficit is attributable to increased spending by the state in the last year. The report also found that in defiance of detractors, the flat tax has actually led to an increase in state tax revenues, and Arizona is once again experiencing a budget surplus.
In a statement, CSIAZ Director of Policy & Research Glenn Farley said, “The facts tell a very different story than many of the headlines would lead us to believe. The data shows us that Arizona’s revenues are strong, local governments are collecting more than ever, and education spending is at an all-time high. The flat tax has not created a revenue crisis—but rapid and unsustainable spending growth has created real budget pressures. If we want to restore stability, we need to focus on the underlying drivers of the imbalance.”
The report from CSIAZ offers a direct refutation of a claim made by the far-leftist think tank Center on Budget and Policy Priorities (CBPP), which claimed in 2024 that the state would face a $1.6 billion deficit through fiscal year 2025 due to the flat income tax and universal private school vouchers. This assessment, however, leaves off a critical necessity in any conservative budget: spending cuts.
Farley and Senior Economist Thomas Young found unequivocally, “Since the flat tax passed, state revenues have grown by $3.3 billion. But the state budget is 25% larger than it was; at peak spending was up $3.7 billion, and even today it’s still up over $2.5 billion versus pre-flat Tax. If spending had followed historical trends, Arizona would have had a $4.3 billion surplus rather than a $1.6 billion cash shortfall last year.”
Farley and Young also debunked a claim from Dave Wells, Research Director at the Grand Canyon Institute (GCI) on “Arizona Horizon” who claimed in October 2024, “The flat tax’s $2 billion annual cost has had visible consequences and was a prime contributor to the budget deficits and cuts made during this legislative session.” They noted that despite forecasts that the budget would cost $4 billion over the next decade, updated estimates accounting “for dynamic effects and rapid growth in other tax types,” adjusts that to a more modest $1.4 billion impact while “revenue growth from a strong economy has more than offset the difference, meaning the state still collects more each year than before the tax cut.”
Much closer to home, claims that the tax reforms haven’t helped everyday Arizonans can be confidently cast aside with the fact that the average Arizonan saves about $400 per year from the flat tax while per-capita income has risen by 68% since 2015, with Arizona’s economic growth far outpacing the rest of the nation.
The report also addressed claims that the reforms hurt city budgets, despite the reforms increasing the share of state income tax filtered down to city and municipal governments by three percent from 15% to 18%, totaling an additional $250 million over two years. The report also refuted claims that education spending would be cut as a result of the flat tax with K-12 education spending up nearly 80% since 2010, growing by 14% since 2022.
Essentially, CSI Arizona has shown that arguments against a flat tax are definitively driven by politics and rhetoric, not facts.
Matthew Holloway is a senior reporter for AZ Free News. Follow him on X for his latest stories, or email tips to Matthew@azfreenews.com.