When the Utah Taxpayers Association held the 2021 Taxes Now Conference in May, we made the prediction that the State of Utah was very likely to end fiscal year 2021 with a fairly large surplus of around $300 million. With the release of the recent revenue summary from offices within the executive and legislative branches, it appears that revenues will come in even stronger than that and leave the state with a surplus that could exceed $800 million.
Utah has also been flooded with unnecessary federal relief money, which the Legislature has very wisely not gone down the road of accepting and spending most of that money.
Not only will the surplus ring in the ears of lawmakers (excluding federal relief money), they will also see new available ongoing revenue of well more than $1 billion and a huge chunk of one time money that could exceed hundreds of millions. After witnessing the massive spending spree on transportation (more than $800 million in 4th Sub HB433) during the 2021 session, taxpayers are overdue to have a meaningful amount of their money returned to them in the form of a significant income tax cut.
State government is taking in far more money than it needs to and Utah’s income tax rate has been stuck at essentially the same level for over 12 years.
Utah is surrounded by several states with zero income tax – Wyoming and Nevada, and other neighbors that are either well below Utah’s tax rate or are chopping their rates far below Utah’s 4.95% rate. Arizona just set themselves apart from the rest of the pack in June with a massive $1.9 billion tax cut, taking their income tax rate down to a flat rate of 2.5%.
Cutting the income tax rate creates a magnet for businesses and jobs to migrate to the state and creates growing revenue as the future unfolds. Examples of this are plentiful.
For example, North Carolina has lowered their personal income tax rate from 7.75% in 2013 to 5.25% in 2021 and their corporate tax rate from 6.9% to 2.5%, now being the lowest rate in the nation, during the same timeframe. During that time tax revenue has ballooned, hitting the triggers in statute that made the tax cuts permanent. North Carolina has vaulted itself from 22nd place in 2013 on the Rich States Poor States Ranking by ALEC (American Legislative Exchange Council) for best economic outlook to #5, picked up 2 additional congressional seats with the 2020 census due to the inflow of population and wealth, and has seen job growth of over 700,000 jobs from 2011 to 2019.
Not only will lowering the income tax rate make Utah more competitive in attracting jobs and businesses, it will provide well deserved relief for taxpayers and still leave plenty of revenue for funding of education and other priorities on the minds of policymakers.
An income tax cut taking the personal and corporate tax from 4.95% to 4.70% would return approximately $300 million to taxpayers and still leave almost $1 billion in new available ongoing revenue for spending. In fact, one could easily make the argument that a cut of that amount is far too small. That cut amounts to only about 3% of the tax base. By comparison the last major income tax cut done in 2008 was around 8% of the tax base. A cut of $500 million taking the rate closer to 4.50% would be well within reach. Arizona just cut taxes by $1.9 billion, which is 14% of their tax base.
The legislature needs to finish the job for taxpayers by following up their targeted income tax cuts for seniors, military retirees and those with dependents with a broad based income tax cut that provides relief for all taxpayers. Your Utah Taxpayers Association will strongly advocate for it and we urge all taxpayers to contact their legislators and urge them as well.