Governor’s Executive Order and Its Impact on Arizona’s Budget

On November 20, 2025, Gov. Katie Hobbs issued an executive order that directs the Arizona Department of Revenue to prepare tax forms early so Arizona can act quickly if lawmakers approve several proposed deductions next legislative session. The Arizona Center for Economic Progress has analyzed the potential impact of these deductions to help Arizonans understand both their value and their cost. 

How Much Each Proposed Deduction Would Cost Arizona 

According to preliminary estimates, the combined revenue loss could be significant.

Even on their own, each deduction costs the state: 

• Senior standard deduction increase: at least $54 million 

• Tip income deduction: at least $24 million 

• Overtime income deduction: at least $77 million 

• Car loan interest deduction: at least $13 million 

Total projected annual impact: at least $168 million. 

How Little This Helps the Typical Arizona Household 

Despite the high cost to the state, these deductions provide very modest benefits to most Arizona families: 

• The average senior would see roughly $150 annually. However, it is likely that 1 in 5 seniors do not make enough taxable income to benefit from this provision.  

• A tipped restaurant worker, claiming the head of household deduction with one child, would likely see about $100 per year. However, the same tipped restaurant worker in the 25th percentile of income likely makes too little to benefit from the provision.  

• A person working overtime in manufacturing would see about $102 annually.  

• A car loan interest deduction would amount to roughly $87 on a loan of $50,000, the average price of a new car in Arizona.  

For many families, that’s only a few dollars per paycheck — or even less

Yet, these Arizonans could stand to lose much more from these tax cuts. Adopting these revenue cuts would mean the state could be forced to cut valuable services, resulting in reductions or complete loss of services or programs like:   

• Nursing-home level of care for Arizona seniors, valued at at least $50,000 a year per senior 

• Child care for a tipped worker with one child living in Maricopa County, valued at least $12,200 a year 

• Food assistance, valued at $8,500 a year, for a Pima County family of four  

We believe Arizonans deserve real, meaningful relief — not deductions so small most people won’t notice them. 

What Arizona Could Fund Instead 

The $168 million in total annual revenue loss could instead fund: 

• Expanded levels of child care support for at least 31,700 children ($160 million)

• Restoration of state funding to support 71,700 community college full-time students in Maricopa and Pima counties ($35 million) 

A Better Path: Evidence-Based Policies That Help Families 

If Arizona leaders want to improve household financial security, several tools have a proven track record: 

• A refundable state Earned Income Tax Credit, which lifts working families out of poverty 

• A refundable Child Tax Credit, shown to reduce child poverty dramatically 

• Investments in child care, affordable housing, and public schools that strengthen the state’s long-term economic foundation 

These solutions offer far greater return for families and for Arizona’s economic future than the deductions currently under consideration. 

Why H.R. 1 Still Matters 

Even though Gov. Hobbs’ Executive Order does not adopt H.R. 1’s tax provisions, that will be the role of the Arizona legislature next session, it is important to remember what that federal legislation would do. In their entirety, H.R. 1’s tax changes, including those not referenced in Governor Hobbs’ EO, will overwhelmingly benefit wealthier households, while forcing cuts to the federal investments that keep states like Arizona afloat — including Medicaid, SNAP, and disaster funding. H.R. 1 is a reminder that poorly designed tax cuts can hollow out state budgets, shift costs onto families, and ultimately weaken the services that help people get ahead. 

Arizona cannot afford to repeat those mistakes. 

We support efforts to make Arizona’s tax system easier to administer, but we also believe Arizonans deserve transparent analysis and better alternatives — policies that actually move the needle for working families while protecting the state’s long-term fiscal health.