Among states that levy an income tax, Arizona boasts the lowest income-tax rate in the country. Arizona achieved that by reducing its income tax from a top rate of 5.04 percent in 2003 to 2.5 percent by 2023.

Arizona enacted a modest tax reduction between 2004 and 2006, bringing the rate down by 50 basis points from 5.04 percent to 4.54 percent. By 2007, per capita government revenue had grown by roughly $500. After the Great Recession, revenues fell back down and stayed relatively flat throughout the next decade.

Starting in 2021, as state revenues spiked, Arizona began more aggressive tax cuts, reducing the rate from 4.5 percent to 2.5 percent by 2023. Since 2003, Arizona has slashed its income tax in half and has seen state revenue grow by 9 percent, even when adjusting for inflation and population growth.  

Sources: Arizona JLBC Historical GRF Collections; Federal Reserve Bank of St. Louis; CPI Inflation Calculator

Additionally, the Arizona state Senate has recently passed a measure that is similar to what was just signed into law by Mississippi’s governor: an income-tax phaseout plan that reduces the income tax rate as state revenues grow to a certain level.