How Does Arizona’s New Tax Cut Benefit You?

Legislature Passes Fiscally Conservative, Forward-Looking FY22 Budget

The Arizona House of Representatives has passed a landmark fiscally conservative, forward-looking budget that invests in K-12 education, public safety, public health, infrastructure and natural resources, while securing the single largest tax cut in state history.

The House vote follows the state Senate’s approval of the budget on Wednesday. Governor Ducey will receive the budget bills once they are finalized between the House and Senate.

“This budget makes responsible, targeted and substantial investments in the things that matter while allowing hardworking taxpayers to keep more of the money they earn,” said Governor Ducey. “It is a landmark plan and it is the result of one of the most successful legislative sessions in Arizona history. We achieved a tax cut that will protect working families and small businesses, we’re paying off hundreds of millions of dollars in debt, we have the most sweeping child care package in the nation, and we’re making record investments in K-12 and higher education, infrastructure and public safety.”

This year’s budget fulfills Governor Ducey’s commitment to being a prudent steward of taxpayer dollars. It implements a 2.5% flat tax phased in over three years beginning on January 1, 2022. The tax plan saves money for every Arizona taxpayer no matter their income, eliminates income taxes on veterans’ military pensions, increases the charitable contribution deduction to 100%, and protects small businesses from a 77.7% tax increase.

This budget pays off nearly $1 billion in debt and another $1 billion to reduce the state’s pension liabilities. It also invests in the areas important to all Arizonans, including $13 million for State Trooper body cameras, $30 million to ensure K-12 students have access to school transportation, more than $200 million to further protect Arizona’s water future, $50 million to continue widening Interstate 10 between Phoenix and Tucson, and more.

“I’m grateful to our state lawmakers for their hard work, their focus and their partnership to deliver a budget for all Arizonans,” Governor Ducey added. “My thanks goes to Senate President Karen Fann and House Speaker Rusty Bowers for their leadership.”

Arizona has passed an historic tax reform package that changes our tax code, reduces income taxes, and benefits everyone.

Here’s what your need to know about what’s changed:

  • BENEFITS ALL TAXPAYERS:The average taxpayer will receive a 13% income tax reduction, saving about $350 a year.
  • IMPLEMENTS THE LOWEST FLAT TAX IN THE COUNTRY:Arizona is on track to have a flat tax of 2.5% — the lowest flat tax in America.
  • KEEPS ARIZONA COMPETITIVE:While states like California, and the federal government, keep driving up taxes on citizens and job creators — in Arizona, we are returning surplus dollars to the taxpayer. Why? Because you earned them. This will continue to attract jobs and people to our state.
  • PROTECTS VETERANS:Our nation’s greatest heroes will no longer pay taxes on their retirement pay. This saves the average veteran an additional $650 a year.
  • SUPPORTS SMALL BUSINESSES:Prevents a 77.7% tax increase on small business owners. In Arizona, 99% of businesses are small businesses. Without this reform, small businesses would be crushed.
  • REDUCES PROPERTY TAXES:Reduces property taxes on small businesses and job creators by 10%, and increases the homeowner’s rebate so the state now covers HALF of homeowners’ primary property taxes.
  • PROTECTS K-12 DOLLARS:The budget increases investments in K-12 education, and this tax reform DOES NOT impact or reduce any K-12 dollars, including those approved by voters in 2020.
  • HELPS OUR CHARITIES:Increases the amount an individual can deduct on charitable givings, providing additional support for community non-profits.
  • PAYS OFF DEBT:While Washington, D.C. racks up more and more debt, Arizona is paying ours off — nearly $1 billion, plus another $1 billion in pension liabilities.
  • BUDGETS RESPONSIBLY:Small businesses and families have to balance their checkbooks, and that’s what Arizona is doing. This plan makes sure we don’t spend more than we can afford, with triggers to ensure we meet our obligations and protect the taxpayer.

In Arizona, we believe you deserve to keep the money YOU earn. This plan does that, while continuing to invest in the things that matter — K-12, community colleges, and new roads and bridges.

Click here to view details on the budget.

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