Arizona budget deal appears to have votes for final OK Thursday

The heart of the package is conforming Arizona's income tax code to what the Republican-controlled Congress approved last year. That includes an increase in the standard deduction, no tax on tips or overtime, and an extra $6,000 deduction for seniors, something that both Democratic Gov. Katie Hobbs and GOP legislative leaders sought.

But there also are some tax breaks for businesses that the governor opposed, including a new deprecation allowance for some property.

Mesa Republican Rep. Justin Olson, discussing the plan Wednesday, said those are all good moves. He is particularly pleased there is no need for Arizonans who filed their 2025 taxes in April to now have to go back and amend their returns.

That's because the 2025 tax forms issued by the Arizona Department of Revenue included places for people to deduct not just the tax cuts sought by Hobbs but also state versions of everything else approved by Congress.

"That's an absolute necessity that the state honor the promise that it made, the pledge that it made when it issued the tax forms back in January,'' Olson said.

But he said he cannot live with the nearly $18.3 billion state budget proposal.

Consider, he said, that in the 2018 budget year, total state spending was $9.8 billion. That means the budget will be nearly 87% higher than it was then — a figure he said is close to double the state population growth and inflation.

Olson said the year-over-year growth in state spending — 3.1% or 4.0%, depending on which figures you use as a starting point — is far more in line with what it should be. But he said that, given programs that have been baked into the budget in the past, all of which remain for future years, he still can't vote for the package.

Tempe Democratic Sen. Mitzi Epstein said there are things she likes in the final package.

Most notably is the fact that while Hobbs did not get lawmakers to approve her request to stop providing tax breaks for data centers, the deal does including a three-year moratorium.

That won't affect any business that already got approval for tax breaks that can last up to 20 years. But it means no new ones will be approved, a provision that frees up $57 million over that time period for other programs.

But Epstein found plenty to criticize that she said will cause her to vote against the plan — including the parts of the tax conformity that Hobbs wanted.

She specifically mentioned the decision not to tax tips up to $25,000 a year, something Hobbs first proposed last year as part of her "middle class tax cut.''

"Bartenders everywhere are so happy,'' Epstein said. But she said that doesn't make it right.

"If a bartender and a firefighter both earn $90,000 for their work, the firefighter should not pay more than the bartender does in taxes,'' Epstein said in a 10-page analysis of the budget she prepared for colleagues.

"But with this plan, the firefighter pays more,'' she said. "This tax plan violates the tax principle of fairness, treating people differently based on the kind of work they do.''

Equally unfair, Epstein said, is the part of the budget that eliminates tax on up to $12,500 of overtime pay for those earning up to $150,000 as single person.

She said two workers may each earn $70,000. But one may be getting that in regular salary and the other earning $60,000 in regular time and $10,000 in overtime. The overtime, under the terms of the budget deal, is tax free.

"If two workers both make $70,000, then one should not pay less in state income tax than the other,'' Epstein said.

Epstein said this is about more than fairness. She said every dollar lost in income taxes from these special carve-outs means less money for programs such as food stamps, Medicaid and the state Children's Health Insurance Program.

Still, there appear to be enough votes coming from both Democrats and Republicans in the GOP-led Legislature to gain final approval and put the package on the desk of the governor, who has said she will sign it.

"These are tough times,'' said Sen. Lela Alston, a Phoenix Democrat. She said she is particularly disappointed that the budget does not include her proposal to ensure that family members who take care of children in foster care are paid the same as outsiders who provide such care.

But Alston said there are other things she thinks are OK.

"I like enough OK that I'm going to vote 'yes,' '' she said.

House Minority Leader Oscar De Los Santos, a Laveen Democrat who was involved in the budget talks, said the plan up for a vote Thursday is a marked improvement over a $17.9 billion plan that was adopted in May. That plan, which had only Republican support, was quickly vetoed by Hobbs, paving the way for a new round of talks that resulted in the package now before lawmakers.

He particularly boasted that Arizona will become the "first state in the country to place the toughest moratorium on the data centers tax breaks."

De Los Santos said the money saved eliminates the need to enact a Republican plan to impose new restrictions on people enrolled in the Arizona Health Care Cost Containment System, the state's Medicaid program, a move he said would have meant 40,000 people would have lost care.

"That is life-changing for 40,000 Arizonans,'' he said.

Senate Majority Leader John Kavanagh had his own take on the budget — and in particular on the tax cuts.

"I'm pleased to, once again, be voting for a taxpayer-friendly, business friendly, pro-economic development budget,'' said the Fountain Hills Republican. He said the package will pay off, calling it "one that will continue to make Arizona a refuge for people, refugees fleeing the over-taxation, over-regulation of blue states.''

"A budget like this, I think, will bring us more prosperity, more money in people's pockets, bring us more jobs,'' he said.