Governor Hobbs has vetoed some of Arizona’s “tax cut” bills. Republicans describe the latest package as “more than $1 billion in tax relief.”
It certainly is tax relief. The package includes a large collection of business tax breaks, plus tax exemptions for tips and overtime, deductions for childcare expenses and retirement income, and a slightly larger child tax credit.
Election-year messaging focuses on the worker and family provisions, and the veto. The real money is elsewhere.
The first-year cost of the bill is more than $440 million. Nearly $150 million of that comes from business tax credits alone. The package expands business expensing, depreciation, and interest deductions.
One provision allows businesses to expense up to $2.5 million in a single year. A business expensing $2.5 million in a single year is not a mom-and-pop shop.
The worker and family provisions are much smaller.
- The child tax credit increases from $100 to $125 per child.
- The tips exemption is estimated to save the average tipped worker about $82 a year in Arizona income taxes.
- The overtime provision sounds larger than it is. Overtime is paid at time and a half. The exemption covers only the half, not the time.
Most Arizona workers will see little or nothing from the tips and overtime provisions.
The bill also includes deductions for childcare expenses and retirement income. Governor Hobbs proposed a broad senior deduction available to all seniors. The legislature replaced it with a deduction tied to retirement-account distributions. Seniors living primarily on Social Security, wages, or fixed income receive little or no benefit.
- The tips exemption expires in 2028.
- The overtime exemption expires in 2028.
- The business tax provisions remain in the tax code.
Arizona’s tax package is a substantial, permanent tax cut for the wealthy and for big businesses.
It’s a minimal, temporary tax cut for workers.
Further Reading:
For the whole picture including sources, see: Relief for Whom? Arizona’s “Tax Cut” Bill
The full analysis includes the budget process, Arizona’s regressive tax baseline, the senior deduction swap, and the ESA voucher expansion buried in the bill.