I'm not going to beat around the bush here: as the President of an organization representing investors in the state of Arizona, I think taxes should be low. But not so low that they don't pay for the kinds of infrastructure and services that the state needs to provide in order to remain competitive as a place to live, work, and play.
I can't tell you where the magic number is - the tax rate at which the state can just pay for that competitive-advantage-securing infrastructure and services, and no more. But, I have a general idea, based on how Arizona's tax rates compare to the rest of the country.
The following information comparing Arizona's taxes to other states' is from the Tax Foundation which is a generally non-partisan but certainly conservative-leaning organization in Washington DC.
Overall, Arizona's combined state and local tax burden is below the national average. "The state/local tax burden ranking in Arizona has dropped 24 places from 17th highest in 1977 to 41st in 2008. Most of the change came in the wake of a property tax limitation in 1980, and the state's ranking has changed little since. Estimated now at 8.5% of income, Arizona's state/local tax burden percentage is below the national average of 9.7%."
Arizona ranks 26th in corporate tax rates and 33rd in collections. "Arizona's corporate tax structure consists of a flat rate of 6.968% on all corporate income. That rate ranks 26th highest among states levying corporate income taxes. In 2008 state-level corporate tax collections (excluding local taxes) were $122 per capita, which ranked 33rd highest nationally."
Arizona ranks 39th in individual income tax rates and collections. "Arizona's personal income tax system consists of five brackets and a top rate of 4.54% kicking in at an income level of $150,000. That top rate ranks 39th highest among states levying an individual income tax. In 2008, Arizona's state-level individual income tax collections were $530 per person, which ranked 39th highest nationally."
Arizona's sales tax rate is slightly below average but collections are 7th highest nationally. "Arizona levies a 5.6% general sales or use tax on consumers, which is slightly below the national median of 5.85%. 2007 combined state and local general and selective sales tax collections were $1,800 per person, which ranked 7th highest nationally."
Arizona property taxes are comparatively modest. "Arizona is one of the 37 states that collect property taxes at both the state and local levels. Arizona's combined state/local property tax collections in FY06 were $911.73 per capita, ranking the state 35th nationally."
The take home message from the Tax Foundation's data, then, is that Arizona's tax rates and collections are, for the most part, comparable to other states'. But tax rates aren't all that goes into a state's ability to attract and retain employers; also important is the state's expenditure on the kinds of infrastructure and services that employers and their employees demand. Take a look at this chart, which combines the two:
Source: Riding the Fiscal Roller Coaster: Government Revenue in Arizona, Background Report for the 95th Arizona Town Hall, page 122
It makes the most sense to consider Arizona's taxes alongside its expenditures. As the chart above makes clear, Arizona's tax/expenditure ratio is below the national average; above some Western states but significantly below others.
Over the long term, I'm all for lower tax rates and a broader base. It's a bit disconcerting that the state's sales tax collections are the 7th highest nationally. I don't think that's sustainable over the long term, so I'm relieved that Prop 100 is a temporary three-year sales tax increase. Let's get ourselves out of the burning building then talk about how to rebuild a better one.
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