Geographical Impact of Lowering Tax Rates for High Income Earners v. Investing in At-Risk Children

May 27, 2021

AZ Budget Priorities:  

Geographical Impact of Lowering Tax Rates for High Income Earners v. Investing in At-Risk Children


A centerpiece of Governor Ducey and Arizona’s  Republican legislative leadership’s  “flat” tax plan is an effort to move from a progressive marginal rate system to one that eliminates the higher tax rates and replaces it with one rate that is about the same as what lower income earners currently face. The cost when fully implemented is $1.5 billion annually.

By contrast, the Grand Canyon Institute has proposed  an $800 million education opportunity weight to provide targeted funding focused on at-risk children. Six hundred thousand at-risk youth attending publicly-funded district and charter schools would benefit. 

These two policies have vastly different focuses on beneficiaries. 

The proposed tax cut would have the following impact:

  • 350,000 Arizona households with incomes above $150,000 will be the largest beneficiaries. 
  • 1.5 million households (four times as many) would see little or modest changes in their state income tax.  

Table 1 shows a married couple with income of $40,000 taking the standard deduction will have their taxes reduced by $14. Income of $80,000 would decrease a married couple’s taxes by a modest $55.  While a more affluent couple with $160,000 in income saves nearly $1,000, and a couple with $320,000 would see their taxes reduced by $3,625.  Notably, none of these couples are subject to the Prop. 208 surcharge of 3.5% which kicks in on  taxable income above $500,000.  

Table 1


Adjusted Gross Income (married) Standard Deduction (for illustration) Taxable Income Current StateIncome Tax Income Tax at 2.5% Difference in 

Tax Paid

$40,000 $24,800 $15,200 $394 $380 $14
$80,000 $24,800 $55,200 $1,435 $1,380 $55
$160,000 $24,800 $135,200 $4,323 $3,380 $943
$320,000 $24,800 $295,200 $10,995 $7,380 $3,615


Geographic Impact of the Proposed Tax Cut v. Education Funding for At-Risk Youth

These two groups are not equally distributed across Arizona. 

Eliminating Higher Marginal Tax Rates

This policy mostly benefits:

  • Affluent communities
  • Maricopa County compared to rural Arizona and Tucson

Investments Focused on At Risk Children

This policy mostly benefits:

  • Middle and lower income communities
  • Rural Arizona and Tucson

This analysis uses data from Census Bureau’s 2010 decennial census updated annually through the American Community Survey to provide estimates for geographical impact of eliminating higher marginal tax rates and investing in at-risk children.

GCI used the Arizona Department of Revenue’s 2017 tax return analysis (the most recent available) combined with household income data from the census to estimate the portion of people currently in the 2.59% marginal income tax bracket. GCI estimates that households with $35,000 or less in income fall in this tax bracket.  GCI estimates these households will see their taxes reduced by $15 or less as the tax plan would lower their marginal tax rate to 2.5%, 0.09% less.  This is an approximate cut off. As shown in Table 1 some households above $35,000 will also have income tax reductions of less than $15 and there may also be some cases where it slightly exceeds $15. This cut point is likely conservative, meaning more filers will be in the $15 or less group, but due to data constraints it’s used.

By contrast, GCI, estimates that households with incomes exceeding $150,000 a year will save more than $1,000 due to the change (see Appendix 2 for methodological details).  Generally these taxpayers have either a 4.17% top marginal tax rate or a 4.5% top marginal tax rate which will be reduced to 2.5%.  This cut off is also approximate, as Table 1 illustrates a married couple with an income of $160,000 whose tax reduction is just under $1,000. If they had children or had larger deductions, their liability would be less. Consequently, this cut point likely overstates the number of filers saving more than $1,000, but due to data constraints it’s used.

GCI used census data from the American Community Survey to identify the number of at-risk youth around Arizona. The American Community Survey identifies the number of children in households that received help such as through the Supplemental Nutrition Assistance Program (SNAP). GCI then multiplies the number of children receiving help by 1.6, based on the assumption that 60% more students beyond those receiving benefits are likely at risk. This methodology mirrors the one used by the National School Lunch Program’s Community Eligibility Program’s meal reimbursement system, which is used to provide meals to schools with the highest poverty rates. 

GCI completed analyses for all 30 legislative districts and counties as well as select cities and towns to illustrate how differently the elimination of higher marginal tax rates impact communities compared to focused investments in at-risk children.