Arizona lawmakers are heading back to work with one issue set to dominate the debate at the state Capitol: taxes. As the new legislative session begins, the battle over Arizona’s tax bill is already shaping up as one of the most important and divisive topics of the year.
The disagreement centers on how much tax relief Arizona residents and businesses should receive, and how the state would pay for it. Democratic Governor Katie Hobbs and Republican legislative leaders are separated by hundreds of millions of dollars in their plans. With the tax filing deadline of April 15 approaching, time pressure is growing.
The 2026 legislative session officially begins at noon on Monday, January 12. Governor Hobbs will deliver her annual State of the State address later that afternoon to a joint session of the House and Senate. Her speech is expected to focus heavily on taxes, spending, and budget priorities.
Governor Hobbs is running for a second term later this year. She is pushing for what she calls a middle-class tax cut. Her plan would adopt selected parts of former President Donald Trump’s federal tax and spending law. These include higher standard deductions and eliminating taxes on tips.
The estimated cost of Hobbs’ proposal is about $250 million per year. She says this amount is manageable if lawmakers act carefully and responsibly.
Hobbs argues that adopting the full federal tax package would cost far more than the state can afford. She says the entire plan carries a much larger price tag and would require clear answers on funding before moving forward.
In a recent interview, Hobbs said her proposal is meant to be a starting point. She stressed that lawmakers must first agree on how to pay for any tax cuts before expanding them further.
To speed up the process, Hobbs issued an executive order in November. The order required the state revenue department to prepare tax forms based on her middle-class tax cut plan. However, those forms could still change depending on what lawmakers approve.
Republican leaders want a much broader approach. Senate President Warren Petersen, who is also running for state attorney general, supports adopting the entire federal tax law at the state level. His proposal would cost roughly $500 million per year.
Petersen says Republicans want to deliver larger tax cuts to Arizona residents. He argues that the state can afford the plan through greater government efficiency. However, he has not provided detailed explanations of where the savings would come from.
Funding remains one of the biggest challenges facing lawmakers. Budget officials say there is limited extra money available in the next two fiscal years. This makes any large tax cut difficult without reducing spending elsewhere.
Hobbs has acknowledged the urgency of reaching an agreement. She says many residents are already preparing their tax returns and need certainty about the rules they must follow. Delays or last-minute changes could create confusion for taxpayers and accountants.
Republican leaders say they plan to move quickly. Petersen has said the majority party will pass its tax plan very soon, though no exact timeline has been given.
Political observers expect the debate to stretch on. A longtime political consultant says the fight over how to fund tax cuts could delay progress on other issues. He believes both sides will highlight the risks of spending cuts while sticking closely to their own positions.
The consultant noted that Republicans and the governor have very different views on how government should operate. He does not expect a quick compromise.
As lawmakers return to the Capitol, the tax bill debate is set to shape the tone of the entire session. The outcome will affect not only state finances but also millions of Arizona residents preparing to file their taxes.
With elections approaching and budget limits tightening, the pressure is on both sides to find a solution. Whether that solution comes soon remains uncertain, but the Arizona tax bill is clearly at the center of the fight.
