By Howard Fischer
Capitol Media Services
PHOENIX -- Republican lawmakers pushed through a $440 million package of tax cuts Thursday that is likely headed for a certain veto by Gov. Katie Hobbs who has her own $250 million plan.
And the merits of the reductions aside -- and there are sharp disagreements -- the stalemate means that Arizonans who file their state income taxes before there is a deal are going to have to refile them once there is a final plan. And 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 that Arizona would conform its tax code to all the changes included in the "Big Beautiful Bill'' signed into law last year by President 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 or GOP lawmakers have proposed.
Hobbs, for her part, 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 the decision by Congress 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, there are increases in credits and deductions for child care.
So even if the governor were to accept what lawmakers approved Thursday, it, too, doesn't match what's in the tax forms put out by the Department of Revenue.
Meanwhile, the stalemate continues. And that means taxpayers have to decide whether 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 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.''
The Chandler Republican said it could have been prevented.
He pointed out that Hobbs has known what's in the Big Beautiful Bill for months. And he said if she had a plan that differed from the cuts in the federal law, she could have called lawmakers into special session last fall, starting negotiations and, presumably, having a resolution -- all before the Department of Revenue started sending out the tax forms which both sides agree are incorrect.
"This whole drama scenario was avoidable,'' Mesnard said. "There could have been leadership from the Ninth floor if we had gone into a special session,'' referring to the governor's office.
There was no immediate response from the governor's office to questions about her refusal to call lawmakers back to the Capitol after she knew she wanted a tax plan different than the changes in federal law. Nor were there answers to queries about the actions taken by the Department of Revenue which is run by Rob Woods who answers to the governor.
But Sen. Mitzi Epstein said that a special session last year to deal with just tax cuts would not have solved anything.
The Tempe Democrat 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 needed state services for this coming budget year for things like like education and prisons. That has not yet happened.
And she said that doesn't include the money already promised for major road projects, like widening Interstate 10 and improvements on the heavily traveled State Route 347 between Chandler and Casa Grande.
Mesnard sniffed at the argument that the budget should come first. In fact, 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 what a deal was reached.
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 get it.
Consider the provision aimed at seniors.
As approved by Congress, it provided a $6,000 deduction designed in part to fulfill the president'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. And 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.
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,'' said the Goodyear Democrat. 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.
"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. And the Tucson Democrat said that's great -- for those who can afford those costs in the first place and then wait a whole year for some relief.
A better approach for the neediest, according to 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. The Tolleson Democrat said the most recent figures show 10,762 children on that list.
"These are the children that we need to support,'' she said. "These are the families that we need to support.''
Then there are the tax breaks for business, 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 -- at least 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.
Sen. John Kavanagh, however, said it's wrong to believe that 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,'' said the Fountain Hills Republican. More to the point, he said 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,'' he said.
"If you don't have a job, there's no overtime to write off,'' Kavanagh continued. "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 that 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.''
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