PHOENIX — Republican lawmakers pushed through a $440 million package of tax cuts Thursday that is almost certainly headed to a veto by Democratic Gov. Katie Hobbs, who has her own $250 million plan.
Merits of the reductions aside — and there are sharp disagreements — the stalemate means Arizonans who file their state income taxes before the two sides reach a deal will have to refile them once there is a final plan. That deal may not come until after the April 15 filing deadline.
All that is because the state Department of Revenue, following traditional procedures, prepared the forms and instructions under the assumption Arizona would conform its tax code to all the changes included in Congress' "Big Beautiful Bill'' signed into law last year by President Donald Trump.
It includes a laundry list of alterations, ranging from higher standard deductions and elimination of income taxes on tips and overtime, to various changes in how businesses write off the cost of new equipment.
Only thing is, those forms conform neither to what the Democratic governor nor Arizona's GOP lawmakers have proposed.
Hobbs doesn't want the business tax cuts. So if her plan were to somehow become law, anyone who files and takes those deductions would have to file an amended return.
The GOP plan also differs from the federal bill.
For example, it doesn't include Congress' decision to provide a deduction for interest paid on the purchase of new cars built in the United States, something Hobbs incorporated into her plan.
Instead, it includes increases in credits and deductions for child care.
As the stalemate continues, taxpayers have to decide whether to file now — and pretty much be certain they will need to file an amended return — or wait until Hobbs and lawmakers reach a compromise, something that may not happen before those returns are due.
"They have no idea what to do now,'' said Chandler Republican Sen. J.D. Mesnard of tax filers. "Until we get a bill up and signed, that lack of certainty, that confusion, is going to continue.''
"This whole drama scenario was avoidable,'' Mesnard said.
He pointed out that Hobbs has known what's in the Big Beautiful Bill for months. He said if she had a plan that differed from the cuts in the federal law, she could have called state lawmakers into special session last fall, starting negotiations and, presumably, having a resolution before the Department of Revenue started sending out the tax forms.
There was no immediate response from the Governor's Office to questions about not calling such a special session, nor to queries about the actions of the Department of Revenue, which is run by Rob Woods, who answers to the governor.
But Tempe Democratic Sen. Mitzi Epstein said a special session last year to deal with just tax cuts would not have solved anything.
She said it is wrong to debate reducing tax collections — possibly up to $440 million a year — until the state figures out how much it needs to provide state services for the coming budget year such as education and prisons. That has not yet happened.
And she said that doesn't include the money already promised for major road projects, including widening Interstate 10 and improvements on the heavily traveled State Route 347 between Chandler and Casa Grande.
Mesnard sniffed at the argument that the state budget should come first. He said it has been years since the state adopted a budget before April 15, meaning that even if GOP lawmakers agreed to a budget-first scenario, taxpayers still would be filing returns that would have to be amended after a deal was reached.
Details of the competing tax-cut plans
The timing of when to consider tax cuts aside, sharp differences remain between Democrats and Republicans about not just the size of the tax cut package but who should benefit.
Consider a provision aimed at seniors. As approved by Congress, it provided a $6,000 deduction on federal taxes designed in part to fulfill Trump's promise to eliminate taxes on Social Security.
That's not an issue here, as Arizona doesn't tax Social Security. But it still would have provided some tax relief for seniors. Hobbs included it in her plan.
But legislative Republicans replaced that with a different $6,000 deduction — but only to offset retirement income, whether from traditional retirement plans or distributions from individual retirement accounts or 401(K) plans.
Goodyear Democratic Rep. Mariana Sandoval said that shift leaves out those who need tax relief the most.
"I have seniors in my district who have worked their entire lives, low-wage jobs, who don't know that retirement accounts exist or they don't have the extra income to establish retirement accounts,'' Sandoval said. Instead, she said, they rely solely on Social Security and food stamps.
Republicans also replaced the deduction for interest payments on new cars with some new credits and deductions for child care.
"It might help someone,'' said Senate Minority Leader Priya Sundareshan, a Tucson Democrat.
"For example, if you are paying $36,000 a year for child care, as some do, you will get a benefit of $900 after you pay your taxes the following year,'' she said. She said that's great — for those who can afford those costs in the first place and then to wait a whole year for some relief.
A better approach for the neediest, according to Tolleson Democratic Sen. Eva Diaz, would be to put the money into reducing the "wait list'' of those hoping to get some state assistance with child care costs. She said the most recent figures show 10,762 children on that list.
"These are the children that we need to support,'' Diaz said. "These are the families that we need to support.''
Then there are the tax breaks for businesses, like allowing them to deduct the full cost of new expensive equipment immediately from their income.
Epstein acknowledged that this is a zero-sum game for the state. Whether the deduction takes place over one year or three, the business still would get a tax break.
But she said it ignores the question of whether the state can immediately absorb the accelerated deduction and other tax breaks, all of which total about $78 million.
Fountain Hills Republican Sen. John Kavanagh said it's wrong to believe tax breaks for businesses somehow harm individuals.
"If we didn't have businesses and we didn't strengthen them, which is what this tax cut does, you wouldn't have Arizona having economic growth that's better than most states in the country,'' he said.
More to the point, he said that without a strong business base, the other tax cuts for individuals like no tax on tips or overtime — the ones supported by both Hobbs and GOP lawmakers — would be meaningless.
"If you don't have a job, then there are no tips to write off,'' Kavanagh said. "If you don't have a job, there's no overtime to write off. If you don't have a job, you don't need child care because you're sitting home watching soap operas all day.''
As it turns out, not all of the Democrats are happy with everything the governor put into her plan, including things the GOP also wants, like saying those who get tips don't have to pay taxes on them.
"If a bartender and a firefighter both make $90,000 they should both pay the same income tax,'' said Epstein. "We should not favor one kind of work over another kind of work.''
