Last year, Gary earned $100. He spent $60 on public schools and college and $40 on "everything else."
This year, Gary took a $5 pay cut but needs to spend $45 on "everything else.” Can Gary still spend $60 on public schools and colleges?
If you answered “yes” to that little story problem, you’re either a state legislator or a product of Utah’s chronically underfunded schools.
The numbers don’t add up. Nonetheless, that’s exactly the tax reform recipe legislators came up with after months of work and public hearings.
The logic is baffling.
They start from the proposition that more money is needed for critical social services — mental health treatment, affordable housing, disability services — as well as things like roads, highway patrol troopers and public employees.
They’re not wrong there. Utah is struggling to keep pace with the demands it’s facing.
To get there, though, they want to cut tax revenue by $75 million and they think that somehow will let them put more money toward those critical needs AND continue current funding for education.
The math simply doesn’t work. You could call it voodoo economics, but it would be an insult to witch doctors.
Lawmakers are seeking that tax cut despite a Utah Foundation report earlier this month that showed taxpayers are paying a lower percentage of their earnings in taxes than they have at any time in the past quarter of a century.
Then there’s the issue of HOW they want to blow up the existing tax structure.
The biggest change would be to rewrite Utah’s Constitution to get rid of a provision that has existed since 1931 dictating that all income tax revenue be spent on education. The sponsors contend it will give legislators the flexibility to spend money on other critical needs without harming public and higher education.
As I’ve said before, the only flexibility lawmakers would gain is the ability to spend less — not more — on education.
Lawmakers have put more than $1 billion into schools in recent years, and that’s good. But they did it because they had that constitutional requirement.
That brings us to the proposed tax cuts, the biggest one being a quarter percent reduction to the income tax, a reduction of $280 million annually. Lawmakers also want to take $45 million in liquor tax revenues that now fund the school lunch program and let schools absorb the cut.
And they are seeking a dramatic increase in the per-child tax deduction, raising it from $500 to $2,500 — meaning those families with a lot of kids who gain the most from public schools will be paying less.
If we want people to pay for the services they use, in a state that claims to want to have people pay for the services they use, it would have made more sense to look at what former Sen. Pat Jones proposed a few years ago — phasing out the deductions for people with lots of kids.
Limiting families to two child deductions, while tough politically, would have generated $187 million. Even cutting the deductions in half after two would have brought in $93 million.
Let’s get back to the new tax plan. To offset the income tax cuts, legislators want to bring back the full sales tax on food, a move that would disproportionately hurt poor Utahns. In exchange, they would give poor families an income tax credit.
Two problems: One, it only helps if families file for the refund (many low-income families do not) and, second, they have to wait until April to get the money, leaving them scraping in the meantime.
“If you’re living on such small margins and you’re short on rent you can’t just pay partial rent,” said Alex Cragun with Utahns Against Hunger. “For people worried about every $5, it’s not about where they’re going to buy coffee. It’s not a math problem. It’s a moral problem. Taxing the essentials to living is not something Utah values.”
Lawmakers also want to raise money by taxing services, but not in a broad-based manner they discussed earlier this year. The proposal is limited to people like landscapers, piano teachers, yoga instructors, ride-share companies like Uber and Lyft, portrait photographers and your streaming services like Netflix and Hulu.
Who aren’t they taxing? The groups that wield political power — accountants, lawyers, doctors and, most notably, Realtors.
Utah is one of 12 states that doesn’t tax real estate transfers. In Connecticut, which has a population similar to Utah’s, the real estate tax rakes in nearly $200 million each year and the tax on a $350,000 home is about $2,000, or roughly $6 a month for the life of the mortgage.
It’s not surprising Utah lawmakers didn’t go there. Utah Realtors are, year-in and year-out the largest donors to political campaigns, giving more than $207,000 last year alone.
As I mentioned, even after all that shuffling, the new tax plan doesn’t even help pay for the critical needs and makes the shortfall worse by giving a $75 million tax break.
And guess who would benefit the most from the proposed tax cut: According to a preliminary analysis by the Institute on Taxation and Economic Policy, $55 million of that $75 million cut — two thirds of the total tax break — would go to the top 1% of earners, households making more than $486,000 a year and with an average income of $1.3 million.
Lawmakers do have a problem. Sales tax isn’t paying for what the state needs and changes need to be made.
What legislators have come up with, however, is a raw deal, trying to balance the budget on the backs of the poor, using faulty math, shortchanging schools and dodging the tough political decisions — while not even solving the problem they wanted to address in the first place.
It’s a bad plan and the wrong direction for Utah’s future.