Not only has the time come for tax relief for taxpayers in Utah, but there is also plenty of revenue available for a meaningful cut within the prudently managed budget that Utah’s Legislature has crafted during the pandemic.
Sales Tax Revenues Are Growing Rapidly
Due to the skilled management by legislative leaders and the sound tax policy that has been in place in Utah for decades, Utah is weathering the current economic storm surprisingly well.
It might come as a surprise to some that sales tax revenue in Utah in 2020 has actually INCREASED over 2019 levels. For the first three months of fiscal year 2020 (July to September) sales tax revenue is almost 8% higher than the first quarter of the previous fiscal year. With the collection of sales tax on all online purchases in Utah beginning back in 2019, general fund revenues from sales taxes have been growing at a higher rate than before, and even during the pandemic, the additional uptick in online shopping has more than offset economic weakness in certain areas like tourism and travel.
In fact, using data your Taxpayers Association has collected from the Utah State Tax Commission, as the dust is settling on what “new” amount of revenue Utah is collecting after the Wayfair decision by the U.S. Supreme Court in 2018, our calculations show that Utah is collecting an additional $250 million annually compared to before. That is almost exactly the amount Utah State Tax Commission Chair John Valentine predicted would be coming several years ago.
Fears of faltering sales tax growth seem to now be unfounded and there is plenty of room for Utah to continue to chip away at burdensome, job-killing sales taxes on business inputs that still exist on businesses of every size in Utah.
Why Cut Utah’s Income Tax?
However, the income tax is where Utah needs to provide badly needed relief in several specific areas. The good news is that there is plenty of room to do it.
While many states have been nipping at our heels as the state with the best economic outlook and job growth, Utah’s income tax rate and structure has remained stagnant for well over a decade. Our flat tax rate of 4.95% is simply too high. As this map from ALEC (American Legislative Exchange Council) shows, since 2013, only 14 states ranked worse than Utah in enacting meaningful tax relief. We are in danger of losing our #1 spot for the best economic outlook in the nation if meaningful reform is not done soon.
How to Cut Utah’s Income Tax Rate
Governor Herbert wisely called for a $200 million dollar tax cut at the beginning of 2019 and Speaker of the House Brad Wilson called for an even bigger cut of $225 million. They know that is the best medicine for Utah’s economy. The income tax rate was going to be cut to 4.66% with the recent tax reform bill that was repealed. Moving the rate down towards 4.5% or lower is the direction Utah should be moving. A significant cut is not only the right medicine, there is also plenty of revenue to do it.
We cannot forget that an $80 million set aside for tax cuts is STILL in the budget from the previous year and that relief needs to be given to taxpayers. There is also a growing amount of surplus revenue based on the revenue assumptions that were set back in June when COVID budget adjustments were made by the Legislature.
By our calculations this surplus in the income tax fund will soon eclipse $50 million. Adding that to the original set aside there is $130 million and growing for an income tax cut. That would allow Utah to move its income tax rate down 10 basis points to 4.85% and put $130 million right into the pockets of taxpayers as they struggle to recover from the pandemic.
Education Funding Would Be Protected
There are some who claim that cutting the income tax or expanding its uses would harm education. As the Legislature adjusted budgets due to the ongoing COVID-19 pandemic all state budget appropriations were pulled back EXCEPT for education, which was generously funded. Public education even saw a funding INCREASE. We believe Utah is the only state in the nation to do that.
In addition, if Constitutional Amendment G passes, HB 357 will be fully enacted, which means that education is first in line for guaranteed funding in the future before anything like this is considered.
In fact, cutting the income tax rate leads to greater education funding in the future. The golden rule of tax policy has always been: if you want more of something- you tax it less. Utah’s own history is another solid example of that fact.
Since Utah cut it’s income tax rate from 7% to 5% back in 2008, income tax revenues have ballooned from $2.6 billion in 2009 to $4.8 billion in 2019. That is an additional $2.2 billion annually that goes into the Education Fund.
Cut Taxes on Social Security
The second area where Utahns need income tax relief is on their social security benefits. Utah is still one of only a handful of states that still levies state income tax on senior citizens social security benefits. It is long past time to eliminate this burdensome tax on our senior citizens. Representative Walt Brooks (St. George) has pioneered this idea with previous bills and Senator Wayne Harper (Taylorsville) has joined the effort with a similar bill this year. The fiscal note for such bills have been around $15 million. There is plenty of surplus revenue to pass this tax cut as well.
Tax relief for Utah taxpayers is long overdue. The Legislature should cut the income tax rate to 4.85% and eliminate income tax on our senior citizens’ social security benefits. There is more than enough room in the budget to do it while keeping education whole. Your Utah Taxpayers Association will be doing everything we can to make it a reality.