Hobbs backs Trump tax cuts for the middle class. But she's open to breaks for the wealthy, too

Gov. Katie Hobbs wants to implement new state-level tax cuts for middle-class families that mirror federal cuts backed by President Donald Trump earlier this year, and she said she’s open to discussing proposals to adopt other cuts for higher-income Arizonans — if Republican lawmakers can find the money to pay for it.

Hobbs announced the proposal earlier this month, which includes Arizona increasing the standard deduction for tax filers to match what was included in Trump’s so-called “Big Beautiful Bill,” also called H.R. 1. Hobbs also wants lawmakers to adopt new deductions for people over 65 and allow Arizonans to deduct tips, eligible overtime pay and interest from certain car loans.

The Democratic governor said her proposal is an example of a commitment she made after Trump was elected to work with the president to benefit Arizonans.

“I am looking forward to working with Republicans at the beginning of session to codify this,” Hobbs said.

But, in Arizona, GOP lawmakers accused her of being dishonest.

“Middle-class families deserve honesty, not last-minute attempts to steal credit for others' hard work," Sen. J.D. Mesnard (R-Chandler), who chairs the state Senate committee that deals with tax policy, said in a statement.

They say Hobbs is just trying to rebrand federal Republican tax cuts that passed without support from Arizona’s Democratic members of Congress after the governor released a statement referring to the cuts as “Governor Hobbs’ Middle Class Tax Cuts Package.”

“Let's be clear: Governor Hobbs didn't create these tax cuts — she's trying to take a victory lap on the GOP's work,” Mesnard said.

Conformity

Hobbs’ proposal does not call for the adoption of other federal cuts in H.R. 1 that she believes would disproportionately benefit wealthy residents, like allowing businesses to write off the cost of new equipment faster.

“I am ensuring that Arizonans have lower taxes, and this will benefit almost every single tax filer,” she said.

Republicans argue that not conforming with the full slate of federal cuts will make it more difficult for Arizonans to file their taxes, because it could cause them to do separate income calculations for their state and federal forms that aren’t required today for most filers.

That would create an “accounting nightmare,” said Sen. John Kavanagh (R-Fountain Hills), the state Senate Majority Leader.

Hobbs said she’s not ruling out adopting other federal tax cuts in Arizona, but said those negotiations should take place as part of larger budget discussions, which don’t usually wrap up until the summer — well after most Arizonans file their taxes in April.

Conversely, she is calling on the Republicans who control the Legislature to quickly adopt the middle-class tax cuts she is backing after the next legislative session begins in January, so that Arizonans can take advantage of those savings on their 2025 tax returns.

“The Washington budget made this tax cut retroactive,” Hobbs said. “I'm making sure that the majority of Arizonans, everyday Arizonans, middle-class Arizonans, can claim this higher standard deduction. The tax cuts for billionaires and for corporations come with a big price tag, and I want Republicans to show me in budget negotiations how they want to pay for that.”

The cost

The Governor’s Office estimates that Hobbs’ preferred cuts alone will cost the state $215 million in lost revenue, and legislative budget analysts predict full adoption of the federal cuts in the state tax code will cost Arizona $438 million in tax revenues next year.

That could further complicate budget negotiations between Hobbs and Republicans, who have had to navigate state budget deficits and other financial crises in recent years, including the near-bankruptcy of a program that provides services to Arizonans living with disabilities.

Hobbs and other Democrats have partially blamed recent budget issues on an income tax cut passed under former Republican Gov. Doug Ducey that disproportionately benefited wealthier Arizonans.

For her part, Hobbs didn’t provide details on how she plans to pay for the smaller slate of cuts she is backing.

“You'll see it in our budget when we put out our budget in January,” she said.

Kavanagh, meanwhile, said he is confident lawmakers will be able to find the money to pay for the full slate of tax cuts.

Howard Fischer with Capitol Media Services contributed to this report.