Fiscal Policy

Governor Ducey’s Chance to Make History

Arizona Governor Doug Ducey in Phoenix in 2014. (Samantha Sais/Reuters)
By dramatically decreasing the state’s income tax and simplifying its tax code, the governor can help ensure Arizona’s future ideological and economic success.

Now in the twilight of his gubernatorial career, Arizona governor Doug Ducey has the unique opportunity to make history on two fronts. First, if he simply remains in office for the next 18 months, he will become the Grand Canyon State’s first governor since Jack Williams — whose term ended in 1974 — to both enter and leave office during regular election cycles.

This peculiarity began with Raúl Héctor Castro, who succeeded Williams as governor. Castro happily resigned his post a few years later once President Carter had appointed him ambassador to Argentina. Since Arizona does not have a lieutenant governor, then–secretary of state Wesley Bolin ascended to the governorship by virtue of being the state’s next highest-ranking elected official — only to pass away six months later from a heart attack.

Arizona’s constitution stipulates that in such circumstances the third-highest-ranking official is next in line, meaning that the attorney general, Bruce Babbitt, also achieved the governorship without having to run for the office. And on it went. Since then, Arizona has witnessed a gubernatorial impeachment, two resignations, and three more secretaries of state extemporaneously gaining the governorship — making the office of secretary of state much more significant than its otherwise mundane responsibilities would suggest.

Governor Ducey is term-limited at the end of 2022 and so is primed to become Arizona’s first governor in nearly half a century to be both elected to the office and then to actually serve out his full term(s). While this accomplishment is an interesting piece of trivia for political-history buffs, it’s not much of a résumé builder for a politician who may have greater ambitions come 2024.

Whereas most of Arizona’s governors have fallen somewhere between unremarkable and abysmal, Governor Ducey has the opportunity to break this mold and leave a permanent, positive mark on the state. This is where his second opportunity to make history lies: in tackling Arizona’s antiquated tax code — one made much worse by the recent passage of Proposition 208.

For the uninitiated, Prop 208 was billed as a tax on “millionaires” designed to provide additional money to the state’s K–12 education system. In actuality, the measure nearly doubles the income taxes on individuals and small businesses who have the audacity to make more than $250,000 a year. Unsurprisingly, Prop 208 contained little in the way of accountability measures to ensure that the confiscated dollars would be wisely spent. Rather, like crossing the event horizon of a black hole, once your income crosses the 208 threshold it simply disappears, never to be seen again.

Prop 208’s effects were felt immediately, with Arizona instantly joining the ranks of states with the worst top marginal-tax rates, far surpassing all its neighbors not named California. At the Goldwater Institute, we’ve challenged the constitutionality of Prop 208 and are now awaiting a decision from the state’s supreme court. A victory is critical to the state’s ability to attract job creators. In fact, an in-depth study published by Goldwater Institute found that, if left unchallenged, the measure would result in the loss of over 100,000 jobs as well as a significant loss of revenue to local and state coffers.

However, even with a court victory, Arizona would still have four separate income-tax brackets, coupled with — once city and locality sales taxes are thrown in — an already high sales tax. When comparing the state’s overall tax burden to the rest of the country (without considering the consequences of Prop 208), Arizona falls solidly in the middle of the pack. While many states in recent years have opted to cut, or even eliminate, income taxes to better compete in a perpetually shifting global economy, Arizona’s tax code has remained relatively stagnant. As a result, the state has seen its Rich States Poor States economic-outlook ranking shift from third place in 2010 to 13th place today. This was despite being one of the three fastest-growing states in the country.

Fortunately, that growth has afforded Arizona a significant budget surplus this year. In the past, such fortunes have been squandered on failed efforts to placate education unions and the government-run schools they represent. Today, with a $4 billion surplus to work with, Governor Ducey and the legislature have a once-in-a-lifetime opportunity to use that money to benefit all Arizonans — by eliminating three of the four tax brackets, providing residents with a simple, low 2.5 percent income-tax rate. This would return Arizona to its historical position as one of the lowest-tax states in the country.

This would be a huge victory and would make Arizona’s income-tax rate the lowest of the “flat tax” states. It would also lay down significant groundwork in the quest to ultimately eliminate the state’s burdensome income tax altogether. Many of us have been working toward this goal for several years, only to see our efforts thwarted by timidity and the unforgiving tide of politics. Fortunately, Governor Ducey supports the 2.5 percent flat-tax proposal and recognizes that Arizona now stands at a crossroads — a slightly center–right, purple state — whose ultimate red or blue hue will be determined by the choices made by policy-makers today.

By dramatically decreasing the state’s income tax and simplifying its tax code, the governor would help ensure Arizona’s future ideological and economic success. And in doing so, make history himself — in more ways than one.

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