It seems the Utah Legislature disagrees with Ben Franklin’s quip that nothing promises permanency more than death and taxes, that is, at least to a degree on later.
Utah’s lawmakers are poised to lower the state income tax rate and provide a more robust tax relief package this year. If approved, Senate Bill 59 drops the income tax rate by a tenth of one percent from 4.95% to 4.85%.
The bill’s senate sponsor, Senator Dan McCay, R-Riverton, originally positioned the bill to only cut half as much to 4.90% but amended it early after his colleagues indicated a willingness to go further.
McCay acknowledges that it doesn’t save the taxpayer a whole lot. A family of four subsisting on $72,000, the median income in the state, will see a little less than a $100 more in their budget.
“That’s not a big number, but it does make a difference to those who earn that income,” McCay told the Senate Revenue and Taxation Committee who voted 6-2 in favor of recommending it to the whole senate.
On Friday the Senate voted 22-5 to approve SB59 and use the full $160 million lawmakers earmarked for a tax cut this legislative session.
Help the Poor Instead or Doesn’t Go Far Enough
Politics often makes for strange bed fellows and criticism of the proposed tax cut has mounted from both political parties. The animated debate on capitol hill continues to find varied and often nuanced collaborated arguments from all ideological persuasions.
The Utah Taxpayers Association calls for a greater income tax cut. “We think there should be a lot of room to make this even more significant for taxpayers with a deeper income tax cut than even what’s proposed now,” said Rusty Cannon, president of the association, at the senate committee hearing.
His presentation referenced raised tax revenue projections that would give the lawmakers much more leeway in state budgeting. Utah’s economy is positioned to continue to grow, which will propel spending among the general population, raising sales tax revenue by significant amounts year to date.
Many cities and counties are projecting double digit sales tax revenue growth over and above last year’s record-setting levels. Governments from state to local townships are awash with cash and are finding less reason to maintain established tax rates.
This view is corroborated by a U.S. News & World Report released today that ranks “Utah as the top state for economy.” The ranking considered the amount of business startups per month, rate of patents filed, three-year average job growth, participation rates, and growth of young population and GDP growth rate.
“We think legislative leadership has been conservative in the way they’re approaching this, and this is early in the game,” Cannon said. This isn’t a sudden reaction by the Taxpayers association either. Last fall, they lobbied leadership to consider lowering the income tax rate to 4.5%, a $500 million cut.
Taxpayers deserve this relief. You look at those trying to afford a home along the Wasatch Front, those that don’t want to have to move far away from their family to afford housing if they’re young,” Cannon told Fox 13. “You have senior citizens that have high property tax burdens, every year. We need to give them more relief,” he said.
On the other side of the opposing argument, Senator Luz Escamilla, D-Salt Lake City, spoke out against the tax cuts at a media availability saying the cuts aren’t enough to make any difference for those with low incomes. The Senate Minority Whip said she would rather see the money utilized to help fund education and other social services to booster the economy.
These views were echoed by other advocacy groups including Voices for Utah Children and Utah Tech Leads, a 501(c)6 industry association representing tech companies in the state.
Voice for Utah Children has long opposed a cut in income taxes for fear of lost opportunity to better fund education. Utah is at a 50-year low in tax efforts, according to the advocacy group. This adds to roughly $2.5 billion in reduction of state revenue that could have been put toward education or other programs.
“We think that now is the time to actually invest in our children and families,” a spokesperson for the advocacy group told Fox 13 reporters. “We are 49th in per pupil funding, 51st in childcare, have one of the highest rates of teen suicide per capita and had the largest percentage growth in uninsured children in the country over the past year. We should be using our good economy to address these and many other issues prior to discussing cutting taxes.”
While Utah Tech Leads does not oppose SB59 they did issue a press release just yesterday opposing additional bills further cutting income and corporate tax rates saying the money should be spent on education and other services.
“Our tax status is healthy. . . Even compared to states with zero income tax, Utah’s tax burden per capita remains one of the lowest in the nation,” the press release states. “Utah’s tech community believes it is time to focus on intentional growth. . . It is time for innovative ideas in education and other services to come forward that will support our growing tech sector.”
Sunny Washington, CEO of Utah Tech Leads, signed the press release and further referenced Utah’s projected population trajectory pointing to 30% of people under the age of 18. A presumed industry liability if the future workforce is not educated properly or the tech company struggling to find talent among the limited native population.
Earned Income Tax Credit Opportunity
Utah Tech Leads supports SB59 but is speaking out against other tax cut proposals due, in part, to the bill’s inclusion of an earned income tax credit for low income households.
Before the Senate voted on the bill, Senator Dan McCay told his colleagues that he expected the House of Representatives to add other tax cut components to his existing across-the-board income tax cut.
“I believe that we’ll see in the House some measures to makes changes to the Social Security tax, to increase that tax credit, and for the first time in the state of Utah we might be in a position to create an earned income tax credit so that this rate can be focused on getting the income tax rate reduced specifically for those that are most in need,” McCay said on the Senate floor.
As part of a larger tax relief package, SB59’s House sponser, Casey Snider, R-Paradise, amended the bill to included a earned income tax credit and social security tax cut for lower-income households.
On Friday afternoon, the House Revenue and Taxation Committee unanimously approved of SB59 out of committee and recommended it to the full House for a vote. This brings the current total proposed tax cut package to $200 million.
This will allow Utahns making under $57,414 a year to receive a 15% state match of the federal earned income tax credit, the first time ever offered in the state.
Representative Mike Winder, R-West Valley, was a major backer of the Earned Income Tax Credit (EITC). According to Winder, 30 states already offer a EITC to low-income individuals. EITC’s were first advocated by Nobel Prize winner Milton Friedman and President Ronald Reagan called them “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress,” wrote Winder.
EITC’s are widely lauded for increasing the incentives to work because it allows one to keep more of their paycheck. Winder notes that Utah is facing a worker shortage and the state’s labor force participation rate hasn’t recorded to pre-pandemic levels.
If passed, he says, the EITC will give more reason for Utahns to join the workforce again. Advocates of EITC argue that the tax relief measure pays for itself through expanded taxes paid by new workers and reduced dependency on welfare.
Bubble of Tax Revenue Surplus or Bubble in the Economy
The full House debate and vote will commence soon and most likely fall along the same lines of logic brought up in the Senate.
The ultimate question when lawmakers lower taxes is if a future legislature will have to shoulder the burden of raising them. The health of the state budget is conserved as well as factors outside anyone’s control such as the health of the future national economy.
Speculation and lawmakers best judgement determine that measurement. Senator Luz Escamilla referenced economists who have warned of the existence of an economic bubble in the national economy that could pop its way into a recession.
“I think we need to be very careful,” Escamilla told reports during media availability last week. “This bubble of a lot of the surplus comes from a very unique situation that the pandemic created with the [Federal] stimulus money. That’s concerning.”
Republicans argue that state budgets are being considered with a measured approach to tax cuts and funding of education.
Senator Ann Millner, R-Ogden, is also concerned about a possible “bubble” but one of tax revenue. The projected tax revenue increases referred to by the Taxpayer Association and others maybe only temporary, Millner worries, and caused by one-time money from Federal stimulus.
“The question is going to be will this revenue hold in an ongoing basis two years, three years down the road. Or do we have a bubble?” Millner told her colleagues. “We need to spend some of the ongoing one time [federal stimulus money] and watch and see what happens next year.”
Tax Cuts Every Year?
The Utah Legislature is not shy in considering tax cuts each year. In fact, they cut $100 million in cuts to the military retirement income tax and the Social Security income tax last legislative session as well as restoring the dependent exemption.
Healthy revenues and federal stimulus continue to persuade state lawmakers to revisit tax cuts often and consider more innovative ways to provide relief. SB59 appears to be on the fast track to approval with Republicans in both chambers championing it. Governor Spencer Cox has also signed his support which clears any hurdles to eventually becoming law this year.
Senate President Stuart Adams, R-Layton, acknowledged to reporters that the tax this year is “prudent” and might not add up to much, but also said another tax cut in the 2023 legislative session is likely.
