Every month the Tax Commission releases its much anticipated update on revenue collections. As has been the case for over five years now, revenue is on a sustainable path.
Income tax is well above target at $3.7 billion (+21.2% versus an adjusted target of 7.8%). Total sales tax collections are up 20.0%. Corporate collections are up 34.0%. Even transportation collections – gas and diesel taxes and motor vehicle registration fees – are above target. Overall, total collections are at +6.0% compared to a target of 0.6%.
In summary, times are good and have been so good for so long, the state has more than enough revenue to provide meaningful relief even if there is a downturn.
For some reason, in the monthly report done by Legislative Fiscal Analyst and the Governor’s Office of Planning and Budget, good revenue collections are almost always downplayed. This month’s reported headwinds include “consumer confidence at a 10-year low, the Federal Reserve hiking interest rates, continued tight labor markets, the war in Ukraine, and the potential for COVID outbreaks.” There is little mention of the eye-popping revenues that continue unabated.
As a general rule, we usually agree with our elected officials’ careful portrayal of the revenue picture. There comes a point, though, when revenue forecasts are too cautious and prevent policymakers from making long-term investments. Now is the time to be more realistic in our revenue outlook.
Here’s a look at our revenue collections forecast compared to the officially reported path.
Presuming income tax final payments come in reasonably good this month, the revenue surplus for fiscal year 2022 (that ends on June 30th) will be around $500 million, at least. We’re not quite sure why the official revenue collections line (on the TC-23 for April) shows up arriving right on target in around one month from now. Collections are well-above target.
There’s a view among some of our elected officials that they need to make “generational investments”. In practice, this has meant spending tons of theoretically determined “one-time” money on transportation, water, higher education buildings, transit, and the list goes on.
Lowering the long-term tax burden of Utah taxpayers has been shortchanged. While a cut from 4.95% to 4.85% is a start, it falls woefully short from what it should be and like we wrote in last month’s newsletter, pales in comparison to what other states are doing.
Time to Think Long-Term
Now is the time to act. Lower tax rates have been historically proven to generate stronger growth than otherwise. Lower tax rates are much more beneficial to our future generations than further subsidies for transit or shiny higher education buildings. Let’s get it done now, an income tax rate cut to at least 4.5%. The money and will is there.
To add more fuel to the fire, if we add on to the healthy revenue figures pending property and gas tax increases, and rising inflation, then it makes complete sense to lower the overall income tax rate to at least 4.5%. Policymakers- invest in the future now and stop kicking the can down the road.