By the Arizona Free Enterprise Club |
After months of vetoes and walking away from the table, Hobbs has finally signed a budget. A budget that looks pretty much the same as the one Legislative Republicans sent up to her desk at the beginning of May. A budget she vetoed, and that she and her colleagues in the Legislature bashed repeatedly. So, what changed?
There were two budget priorities our organization laid out before the session began. First, anything less than full conformity tax relief from Trump’s Big Beautiful Bill would essentially be a tax hike on Arizonans. Second, an extension of Prop 123 (the increased distribution from the state land trust to K-12 schools to the tune of $330 million a year) must be a nonstarter in budget negotiations. Before getting into the details, both of these objectives were accomplished.
The biggest item in this budget fight was undoubtedly tax cuts from tax conformity. After President Trump signed the Big Beautiful Bill into law on 4th of July 2025, states faced a decision: do they pass on the tax relief Republicans in D.C. delivered, or do they effectively increase taxes on their residents. Core planks of conformity included no tax on tips, no tax on overtime, an increased standard deduction, a new deduction for seniors, among several provisions for small businesses and corporations of all sizes, most importantly allowing them to deduct expenses in the year they are made, rather than depreciating those expenses over several years. In other words, the bulk of the business provisions weren’t even a tax cut. The question is not whether businesses deduct those expenses, only when they deduct them.
This question needed to be resolved quickly, as the legislature begins session the second week of January and Tax Day is in April. In the first week of session, Republicans in the legislature sent a package to her desk that delivered full tax relief. All democrats voted no. Hobbs vetoed it.
Again, in February, to prevent confusion and chaos for taxpayers beginning to file, Republicans in the legislature sent up another bill. It received a veto. At the beginning of May, they sent up a budget that included full tax conformity relief for the third time. Again, it met a veto.
Based on all of the votetoes, relentless opposition and endless rhetoric about “tax breaks for billionaires,” you would think that the agreed upon budget must have included significant changes to the tax package. But if you are thinking that, you would be very wrong.
So What did Hobbs and Democrats actually fight for in this budget that necessitated six months of chaos and tax season confusion?
