Arizona's recent economic record has been impressive. Over the past 10 years, Arizona has been the third fastest-growing state in the country on average, Arizona's annual economic growth rate has been 1.6 percentage points faster than the national average. Job growth has been impressive, too. Nonfarm payroll employment grew over 33 percent, the second-fastest payroll employment growth in the country among all the states.
Arizona's accelerated economic growth has been a magnet for people. The states population has expanded much faster than the national average. In fact, Arizona ranks second among all states since 1997 in absolute domestic migration, gaining nearly 770,000 new people between 1997 and 2006. Despite this influx of people, Arizona's annual average per capita personal income growth (4.3 percent) has still managed to be slightly above the average annual growth rate across the United States (4.2 percent) during this period.
Now facing a slowing economy, however, the Arizona must reform its tax system to give the state a strong foundation for continued economic growth. The current system relies heavily on business taxes, which stymie job and income growth. To keep Arizona's economy moving, policymakers should adopt a more pro-growth tax system that includes a flat rate on income and business value added.