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Arizona Faces Sweeping Budget Cuts, Driven by Flat Tax and Private School Vouchers

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Arizona is facing sweeping budget cuts thanks to the exorbitant costs of implementing a flat personal income tax and universal private school vouchers. Enacted one after the other, these policies have led to a nearly $1.6 billion deficit through fiscal year 2025, an eye-popping figure and warning signal for legislators elsewhere.

Nearly every agency will be forced to cut its budget by 3.5 percent. Colleges and universities, programs that will help recruit teachers or teach adult workers new skills, and many other vital public services will face reductions. The state also plans to eliminate funding for water system upgrades and to delay road work and highway construction.

States that have passed significant tax cuts, dramatically expanded private school vouchers, or done both should be alarmed by how quickly Arizona found itself in a deep fiscal hole.

In 2021, Republican lawmakers and then-Gov. Doug Ducey approved legislation cutting the state's graduated income tax rate to a flat 2.5 percent, a move that primarily benefited the wealthiest Arizonans. The policy was enacted with brazen disregard for Arizonans, who months prior voted to increase taxes on millionaires to boost funding for public schools.

It also came with a massive price tag, which is only growing larger with time. Analysts originally estimated the cut would cost $2 billion per year in lost revenue. However, the tax cut has cost $700 million more than expected during the first full year of implementation, which has blown a hole in Arizona’s budget.

The ballooning cost of the state’s universal private school voucher program is also driving the state’s revenue shortfall. Adopted in 2022, it is the most expansive private school voucher program in the country and is expected to cost more than $900 million this year — 15 times more than initially projected. Public school districts are now being forced to consolidate and close local neighborhood schools as tax dollars are siphoned off to unregulated private and religious schools.

Data show that — like the flat tax — wealthy people are seeing most of the benefits from the program, and families in the richest communities are securing a disproportionately high share of these vouchers.