The GOP-controlled Arizona legislature overcame months of pitched resistance and multiple vetoes from Democrat Governor Katie Hobbs, delivering a nine-figure tax cut and spending restraint that gives families and businesses needed relief.
After successful negotiations led by Speaker Steve Montenegro, Senate President Warren Peterson, and Senate President Pro Tempore T.J. Shope, Arizona’s new budget will fully conform the state to federal tax cuts from July of last year, returning $1.45 billion in income taxes to the pocketbooks of Arizona families where it belongs. Tipped workers will now pay zero state or federal tax on their tips, in addition to hourly workers paying zero state or federal tax on overtime pay. Seniors will receive an additional $6,000 tax credit.
Most importantly for the vast majority of Arizona taxpayers, the standard deduction will increase significantly, ensuring that a greater portion of low- and middle-class income is free of taxation altogether.
“Families are tired of politicians treating their paycheck like government property,” said Speaker Montenegro. “This budget gives money back to the people who earned it, blocks new taxes before they hit household budgets, brings spending growth under control, and makes state government live within its means. That is a major win for Arizona.”
Negotiations proved time-consuming, requiring months of work and several iterations of legislation before final passage. Yet leadership still racked up dozens of wins on conservative priorities that make Arizona a better place to live.
“Republicans came to the table focused on finding common ground without abandoning our principles,” said Senator T.J. Shope. “We protected taxpayers, preserved key priorities, and delivered a responsible budget that moves Arizona forward.”
Economic growth – on a tear since Gov. Ducey’s hallmark income tax cuts took effect – will now likely take off even further. Businesses will enjoy common-sense modernization of the tax code through provisions like full expensing, ensuring that they are not penalized for making investments in factories, new equipment, or research and development – all of which ultimately support new long-term jobs and productive capacity.
Moreover, the budget bill this year protected Arizona’s treasured universal school choice program – known as Education Freedom Accounts – that allow families to choose the education path that is right for their children, rather than be locked into a failing school simply by virtue of their zip code. It also reduces government agencies by 2.5% and introduces a number of other efficiency reforms to save money for the state over the long run.
“Government has to fund core services, but it also has to answer to taxpayers,” said Speaker Pro Tempore Neal Carter. “This budget brings spending growth below the combined rate of inflation and population growth, reduces agency operating costs, eliminates unfunded positions, and reforms public assistance eligibility. Republicans protected what matters while making government smaller and more disciplined. That is exactly what taxpayers deserve.”
This year’s tax cut builds on years of success under Governor Doug Ducey, who, in tandem with a GOP legislature, enacted the nation’s lowest single-rate income tax of 2.5%. While plans to ultimately eliminate the income tax floundered under opposition from Gov. Hobbs, many Republicans in the legislature look forward to potentially continuing progress towards zero if Congressman Biggs wins the governor’s race this November.
Importantly, the budget bill was free of more than a billion dollars in new taxes and fees advocated by Gov. Hobbs and her Democrat allies in the legislature, including a new $3.50 fee for Airbnb stays, heavy taxes on artificial intelligence providers, new spending on lottery advertising, and a 45% sports betting fee.
