As the debate over tax reform in Utah comes to a crescendo with a special legislative session in December, a big question still remains: how big of a net tax cut should Utah taxpayers see? How much of taxpayers money should be returned to them, following years and years of surpluses?
There is mounting evidence that a robust amount could be returned to taxpayers without hurting state budgets. In Utah’s parade of positive economic indicators ,the hits just keep on coming. After a slew of strong economic indicators over the last year continue to point towards a healthy budget surplus, the recent TC-23 report from the Utah State Tax Commission puts yet another capstone on the case for a meaningful tax cut. The November 2019 TC-23 report was released just before the Thanksgiving holiday and it gives us plenty to be thankful for from an economic perspective.
The Tax Commission report showed that individual income tax revenue grew by a whopping 11.3% in the previous month versus a Tax Commission and Governor’s Office of Management and Budget forecast of 2.1%. Actual collections for the fiscal year so far are now above the forecasted range at over $1.33 billion[unclear what this 1.33 represents]. The legislature set aside $75 million for a tax cut at the end of the last legislative session, and now there is plenty of data to support a $200 million dollar tax cut. That is exactly what Governor Herbert and Speaker Wilson both called for back in January, and the right move for taxpayers and for the future of Utah is to follow through on that.
While many complain that lowering the income tax rate hurts our public education system by cutting funding, that is simply not the case for a number of reasons..
First, approximately 40% of education funding comes from property taxes, not only income taxes. As people scream about income tax cuts they seem to conveniently ignore the fact that almost half of their funding comes from the most stable and reliable revenue source of all. In addition,due to Utah’s Truth in Taxation law, that revenue never declines.
Secondly, lower income tax rates do not produce less revenue in the long run. The golden rule of tax policy that has been known throughout history is that if you tax something less, you get more of it. If you lower income tax rates, that spurs investment, growth and a stronger economy that grows the whole economic pie even greater than you would otherwise see.Recent history right here in Utah gives us a perfect example of that. The Legislature cut the income tax rate from 7% to a 5% flat rate in 2007, that was unintentionally right as we entered a terrible recession. However, as evidenced by data from the U.S. Bureau of Economic Analysis, Utah’s GDP during 2009-2012 shrunk LESS than all other states in the region and recovered FASTER than all other mountain states as the economy recovered. Lower income tax rates are the best medicine for rough economic times as well as the good.
Third, the future of Utah’s economic competitiveness is at stake. We have to compete in the bare-knuckled fight to attract companies and jobs (hint: Silicon Slopes and many other industries across the state) day in and day out. By far the most critical factor in that is our income tax rate. Even if we lower our rate to the mid 4% range, we need to remember that we are competing with many states that now have an income tax rate down in the 3% range (i.e. North Carolina, Indiana, Pennsylvania) and of course the 0% states like our neighbors Nevada and Wyoming as well as Texas and Florida. Renowned economist Art Laffer speaking recently at the American Legislative Exchange Council told state legislators that if they wanted their state economies to grow, they should cut income tax rates. He said the smartest tax reform would be total elimination of state income taxes.
Economic competitiveness brings Utah jobs. Jobs are what allows us to earn a living and provide for our families. Jobs allow us to live vibrant lives and to prosper. The key to attracting and retaining those jobs is our income tax rate.
It is time for Utah to lower the income tax rate in a meaningful way benefitting all Utah families.