If you really want to see a Republican legislator’s eyes light up, talk about tax cuts — the thrill of a half a percent reduction and love of a rebate finish somewhere between family and guns on their list of true loves.
Coming into the session, legislative leaders vowed they would cut taxes and last week we got a look at what the proposed $100 million package would include.
It consists of two major pieces: First, they want to address changes in the Trump tax bill that ended up increasing the burden on some Utah families. Second, they want to give a tax break to retirees and to those receiving military pensions.
Some lessons were clearly learned from the Legislature’s ill-fated push for comprehensive tax reform back in 2019 that ended up collapsing under its own weight, widespread opposition to an increase in the food tax, and the likelihood voters would repeal the package through an almost-never-used referendum.
This time, the tax proposal is narrower and easier to message. Who in their right mind would question tax breaks for seniors and veterans?
But we should take a little time to unpack these proposals and look at who they help and, more importantly, who they don’t.
The first big piece — correcting the Trump tax hike — is probably the most obvious adjustment. In 2017, the federal tax law reduced the dependent deduction which resulted in a domino effect. Families — particularly large families — ended up paying more in state taxes.
Even if you think big families should pay more than they do (and they probably should) it shouldn’t happen by accident. The Legislature partly fixed the issue in 2018 and SB153, sponsored by Sen. Lincoln Fillmore, moves closer to returning those taxpayers to the status quo before the law changed.
The other two components of the tax package look positive on their face. The first, HB86, eliminates income tax on some Social Security income. The other, SB11 eliminates income tax on military pensions. (Those who happen to get Social Security and a military pension would have to choose one break or the other).
No-brainers right? Who wants to tax the granny on a fixed income pinching pennies so she can send a $5 birthday check to her grandkids? Or punish those who put their life on the line for the country and now are just trying to keep a roof over their heads?
The problem, really, is that the bills don’t help those people. They don’t do anything, in fact, for people most in need.
In fact, more than 70% of the tax relief on the Social Security piece would go to households making more than $91,000 a year, according to data from the legislative fiscal analyst and an analysis by Voices for Utah Children, a group that advocates for low-income children.
The military pension piece is even more skewed to wealthier Utahns. The data shows that more than 90% of that tax relief would go to households making more than $91,000 and 60% would go to the top one-fifth of Utah earners, those households making about $133,000 and above.
Almost no Utahn with a household income of less than $63,000 a year would see any of the relief.
There are a few reasons for that, according to Matthew Weinstein, the state fiscal policy director at Voices for Utah Children.
One reason is that, for most low- and middle-income seniors, Social Security is largely exempt from being taxed, thanks to the Utah Taxpayer Tax Credit and federal policies.
So those seniors who are truly scraping by — like those 22,500 Utah retirees who live in poverty — don’t pay much in taxes. Because the newly proposed tax credit is nonrefundable, meaning it only counts against what they pay and they can’t get money beyond that, it doesn’t help.
The ones it does help are those who have other sources of income, say a 401k or other retirement account or perhaps some other investment income that is taxable. And the more of that income they have, the more generous — proportionately speaking — the credit is, until they hit the ceiling of $145,000 in household income.
The military pension credit has the same issues. Those on the lower end don’t pay much in taxes and will see very little, if any, benefit. So those veterans who are homeless or on the verge of being homeless? Sorry.
The benefits go almost entirely to those who aren’t deciding whether to pay rent or buy food. Instead it’s $12 million going to those who make more than $133,000 per year.
Again, I’m not saying we shouldn’t try to help seniors and military retirees, just that structurally speaking, these bills won’t help the ones who need it the most.
There are better ways to help a larger swath of working Utahns who are barely making ends meet. Early in the session, I looked at proposals to raise the state’s minimum wage and while I recognized that politically Utah’s Republican legislators likely wouldn’t do it (even though Sen. Mitt Romney came out recently in support of a moderate increase), I argued that a state Earned Income Tax Credit, sponsored by Rep. Robert Spendlove, R-Cottonwood Heights, would help many of those same people.
It would put up to $640 in the pockets of working low- and middle-income families, many who are struggling now as much as ever, and would actually cost less than the Social Security and military income tax breaks lawmakers are planning to give to wealthier Utahns.
It has support in the Legislature and actually passed as part of the 2019 tax reform package, only to be repealed with the rest. I foolishly thought this might be the year we finally see an EITC enacted into law.
“I think it’s clear a lot of people feel favorably about that. It’s just a question if [the legislators] want to focus on lower-income or middle-income or upper-income,” Weinstein said, “and it seems like this year they’ve decided and they want to focus on upper-middle- and upper-income.”
And keep in mind what that means in terms of speaking to the Legislature’s priorities. They could have paid for full-day kindergarten or pre-K, helped low-income workers, expanded affordable housing, insured more low-income kids, bolstered COVID recovery, invested in clean-air programs or any number of other things with this $100 million.
Instead they are choosing to largely give it to well-off Utahns.
But hand it to the Legislature. They learned one important lesson from their 2019 tax fiasco, and that is that marketing matters. Unfortunately, their priorities haven’t changed and lawmakers missed a stellar opportunity to give more help to the most vulnerable Utahns.