Utah leaders are feeling bullish about the economy heading into the 2021 session, which means they’re talking about tax cuts.
Utah’s economy is rebounding from the coronavirus pandemic at a much quicker rate than elected leaders anticipated when they cut nearly $1 billion from the budget in the face of a worsening economic picture last year. Sales tax revenue is higher than projected, mostly because Utahns are shopping online more because of the pandemic. Income tax collections are also above what was anticipated as Utah’s unemployment rate remains below the national average.
“I believe the 2021 legislative session is the year of a tax cut,” Senate President Stuart Adams, R-Layton, said Monday at the annual Utah Taxpayers Association conference.
Legislators set aside $80 million for a tax cut in 2019 as part of the failed tax reform effort. There were plans to throw that cash toward a tax cut in the 2020 session, but those were abandoned amid fears of an economic downturn from the coronavirus pandemic.
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That money is still available, and lawmakers are discussing several ideas for reducing taxes. It might include spending $15 million on expanding state tax credits for retirees on Social Security or fixing the state’s dependent exemption, which was impacted by the Trump tax cuts of 2017. They could also use some of that money to reduce the tax burden on military retirees.
There’s also talk among legislators of a possible across-the-board cut in Utah’s income tax rate. One idea is using some of the expected revenue growth to temporarily cut the state’s tax rate for two years, then reverse the cut if revenues can’t keep up.
“I think there are a lot of ways we can look at the additional revenue,” says Sen. Dan McCay, R-Riverton, the new chair of the Senate Revenue and Tax Committee. “I think it certainly warrants some kind of one-time cut in the tax rate. I think that can be done for both individuals and for corporations.”
“Here’s what’s shocking. We’re going to have roughly a billion dollars of growth in new revenue,” said House Speaker Brad Wilson, R-Kaysville.
That projected revenue growth is the primary reason legislative leaders voted to add approximately $400 million to the public education base budget in December, which included $1,500 bonuses for teachers. Those bonuses also were included in Cox’s budget plan.
But, don’t expect a huge spending spree from legislators. There’s a belief on Capitol Hill that approximately $450 million of new revenue growth is “phantom revenue” fueled by coronavirus relief from the federal government. With another round of payments pouring into Utah, with more possibly on the way once Democrats have control of the Senate, that could give Utah’s economy even more of a lift. There are plans to use that cash to pay for one-time projects like transit and transportation. That may include “double tracking” FrontRunner commuter train lines or addressing backlogged maintenance for Utah’s state parks.
Cox, too, proposed directions hundreds of millions toward such capital improvements.
Wilson says Utah is in much better economic shape than other states. “Over half a billion dollars of additional, ongoing new revenue is significant. If you compare what’s going on around the country, there is anywhere from a $350 billion to $490 billion budget shortfall in the rest of the states.”
The 2021 Utah Legislature begins Jan. 19.