(The Center Square) – Arizona Republicans unveiled a new balanced budget proposal this week that includes one of the biggest tax relief packages in state history.
The proposed budget would give Arizonans a $1.45 billion tax break, aligning Arizona’s tax law with the federal tax law changes made in H.R. 1, also known as the One Big Beautiful Bill Act.
Arizona Republicans’ budget includes no tax on tips or overtime.
Furthermore, the budget increases the dependent tax relief for parents, creates a new childcare expense deduction and enhances retirement tax relief for seniors.
Also, the budget would prevent Arizonans from having to refile their 2025 taxes again.
The Republicans’ budget proposal spends about $800 million less than Democratic Gov. Katie Hobbs’ plan, according to an Arizona Senate GOP press release.
“For months, Gov. Hobbs told us full conformity to federal tax relief, including tax cuts for tipped workers, hourly employees, seniors, and small business owners, was impossible,” Arizona Senate President Warren Petersen, R-Gilbert, said in the release. “It’s not.”
“Under President Trump, Washington delivered relief for working Americans, and Arizona Republicans are making sure our taxpayers receive those same Trump tax cuts here at home,” he added.
The Center Square contacted Petersen for an interview, but he didn’t call back to answer questions before press time.
House Speaker Steve Montenegro, R-Surprise, said the budget proposal “funds core state services.”
“It does not rely on gimmicks, inflated projections, or money that may never show up to balance the budget,” he said.
In reaction to the proposed budge, Hobbs said she was “thrilled” to see almost $800 million in middle-class tax cuts and continued funding for childcare.
However, Hobbs said the proposal fell “dramatically short of what the people of Arizona expect us to deliver.”
“Their budget proposal doubles down on reckless and dangerous policies being forced on us by Washington, D.C. politicians,” she said.
“Just like in Washington, they’re paying for tax breaks for billionaires, data centers and special interests by kicking Arizonans off their healthcare and taking food off their tables,” the governor added.
Hobbs said she would closely examine the budget proposal to see whether she would lift her bill moratorium, which has been in effect since April 13. She has said she would veto all bills until Republicans released their budget and participated in serious negotiations.
By email, the Arizona Senate Democrats told The Center Square on Wednesday that the caucus “strongly” opposed the GOP’s budget.
“This budget relies on gimmicks and unrealistic assumptions, threatens rural economies, and prioritizes out-of-state profits over Arizona communities,” the party said. “Arizonans deserve a responsible plan that lowers costs, protects essential services, and ensures every dollar works for families, not just those at the top.”
Glenn Farley, policy and research director of Common Sense Institute of Arizona, told The Center Square that he expected the governor to veto the budget.
Farley said the veto would happen despite one of the budget’s provisions: Arizona taxpayers would benefit from not having to file their 2025 taxes again.
It “minimizes disruption for state taxpayers that have already filed and makes it easier for taxpayers going forward to figure out how to file,” Farley said on Wednesday.
Chad Heinrich, Arizona state director for the National Federation of Independent Business, told The Center Square the Republicans’ tax conformity proposal protects small business owners from receiving a tax increase.
Aligning Arizona’s tax policies with the federal government’s means small business owners won’t have to file taxes twice and potentially pay more, according to Heinrich.
Without full tax conformity for the 2025 tax year and beyond, Heinrich said, Arizonans would “have to maintain two sets of books and guess what the state is going to do.”
A key item left out of the Republicans’ budget proposal was Proposition 123, which uses the Arizona State Land Trust Fund to help fund K-12 education in Arizona.
Farley said the state GOP and Hobbs are discussing how to use the state land trust fund “as new monies for K-12 education spending.”
He noted the disagreement is “over how much new money to generate and where to spend that new money.”
Hobbs’ proposal for Prop. 123 would increase the annual distribution from the state land trust fund from 6.9% to 10.9% for 20 years. Petersen previously told The Center Square that the governor’s proposal would bankrupt the trust in two decades.
According to Farley, the Republicans’ budget also includes a reduction of around $100 million in funding for the state Department of Education due to “declining public school enrollments.”
Arizona public schools have experienced the largest decrease in public school enrollment since 2020, he said.
