The decision to earmark income tax for education was made in 1948 and, with some minor adjustments, has dictated the taxation and spending trends in Utah for the last 76 years. However, we’re not living in a post-WWII society, or economy, or education system, and perhaps the funding mechanisms of the 20th century are out of place in the 21st.
Forty years ago, income tax comprised 2.2% of Utahns’ personal income (and all of it went to education), while sales tax (then unearmarked) comprised 2.5% of Utahns’ income. This relative balance meant the earmark on education made sense; it was a reasonable portion of individuals’ overall income. It was both symbolic of the Legislature’s prioritization of education, and a fiscally sensible way to divide available funds.
But since then, income tax revenues have grown, and they now account for a higher percentage of Utahns’ personal income, despite a declining rate. In response, the earmark was expanded to allow for spending on higher education and services for children and individuals with disabilities. Over the last few years, the Legislature has passed significant tax cuts in an effort to reduce the surplus and restore relative balance to the budget. But the problem persists. The income tax now represents 3.5% of Utahns’ personal income, and the sales tax (now with significant earmarks) comprises 2.1% (1.5% remains un-earmarked).
More than tying the Legislature’s hands, the earmark forces the continued existence of the income tax and dictates a certain rate of sales tax since we rely on those revenues to fund all other state services. It fails to adapt to an economy with changes in employment rates and wage rates and forces the Legislature to consider other sources of tax revenue, such as the taxing of services.
The constitutional earmark on income tax has run its course. Rather than protecting education funding – the Legislature has already passed legislation to ensure education’s continued generous funding should the earmark be removed – it creates an imbalance in the state’s budgeting process and tethers the state’s revenue to a bygone era. Should the public vote this November to remove the earmark, we no doubt would see some of the biggest changes to our budgeting process since the late 1940s.