WASHINGTON, D.C. — The House Freedom Caucus’ “no tax on tips” amendment, approved by a narrow 4‑2 vote in the Arizona legislature, lifted the 2.5 percent state tip tax, immediately raising take‑home earnings for an estimated 120,000 tipped workers.

State officials say the change will add roughly $45 million to workers’ annual disposable income, while the Treasury estimates a $2.5 billion shortfall in state revenue over the next two fiscal years. “Eliminating the tip tax directly benefits low‑wage earners,” Arizona Treasury Secretary Maria Lopez told the Phoenix Business Journal, “but it also forces the state to reassess spending priorities.”

Wall Street reacted modestly. The S&P 500 edged up 0.4 percent in early trading, driven by a 0.7 percent gain in consumer‑discretionary stocks that anticipate higher disposable income. The Nasdaq Composite rose 0.3 percent, while the Dow Jones Industrial Average slipped 0.1 percent as energy shares fell on unrelated oil‑price concerns.

Equity analysts note that the policy’s localized nature limits broader market impact, but it adds a data point to the ongoing debate over the GOP’s fiscal agenda. With the Federal Reserve keeping its benchmark rate at 5.25‑5.50 percent amid stubborn inflation, investors remain cautious about any fiscal stimulus that could reignite price pressures.

Critics argue that the tip‑tax relief is offset by other Republican measures, such as the 2024 corporate tax cut that reduces the top rate from 21 percent to 18 percent and a tightening of immigration rules that has depressed hospitality‑sector hiring. The Bureau of Labor Statistics reports a 3.2 percent rise in the cost of living for service workers in Arizona since January, suggesting that net gains may be modest.

Key Takeaways

• Arizona’s tip‑tax repeal adds an estimated $