At our January Legislative Outlook Conference, Governor Cox alluded to the idea that Utah might one day eliminate its income tax. According to January 2024 revenue estimates, income tax revenues were at $3.5bn for just the first half of FY24, begging the question – how would we manage?

First, it’s important to note that taxation is a function of government spending. Lower taxes mean lower revenues which necessitates lower levels of government spending. While there are ideological differences on how much government should spend, if revenue is simply not collected, there is a clear limit on how much government could spend. So, the elimination of the state income tax would lead to a reduction in spending. Happily, there is ample room in the state’s budget, which has grown by $7.1bn since FY19, to spend less while fully funding essential services.

Second, eliminating the state income tax would not mean eliminating funding for education. Our public education system – including higher education – and services for vulnerable groups are and should be our top funding priority. For many years, the constitutional earmark has been considered a protection for these funds; however, the Legislature has shown willingness to fund these services to unprecedented levels. This education-first approach would continue; the funds would simply be collected differently.

Third, we would need a modernization of our sales tax system. A “broad base and a low rate” is generally considered good tax policy; however, Utah’s sales tax system has a somewhat narrow base. While it is important to remove taxes from business inputs to encourage production and reduce tax pyramiding, any conversations about expanding the tax base are a political minefield. The failed attempt by the Legislature to open that can of worms in 2019 is a recent example of how difficult it is to do that. The only other possibility is enacting a higher sales tax rate statewide, which also has the potential to go over like a lead balloon.  

However, in the 21st century we consume differently to how our predecessors did, but we certainly aren’t consuming less. How much sales tax an individual pays is directly correlated to how much they buy. Consequently, those who purchase more – and purchase more expensive items – will pay more than those who – whether by choice or by necessity – purchase less.

While eliminating the state income tax is an enticing prospect – a Deseret News poll in January 2024 showed that 59% of Utahns support it – it also takes careful planning and can – and will – only be done when the numbers show that it’s possible and prudent. Until then, we’ll continue to enjoy our annual small cuts. While it may test our patience to wait for them, they are adding up to significant relief for Utah Taxpayers.