The first tax cut proposal from the Utah Legislature drops the income tax rate for individuals and corporations in the state from the current 4.95% to 4.9%. That modest rate decrease carries a price tag of nearly $79 million per year.
That’s nearly half of the $160 million legislative leaders set aside for tax cuts. But SB59 from Senate Majority Leader Evan Vickers, R-Cedar City, uses $53.8 million in one-time money next fiscal year, and just $24.7 million in ongoing funds. That accounting maneuver is only for one year, bumping the total price tag back to $78.5 million the following year.
Utah lawmakers are bound by the state constitution to use income tax revenue on public and higher education as well as some services for children and disabled residents. Any income tax cut reduces the projected revenue that flows into the education fund.
Lawmakers have about $1.2 in excess revenue to spend when the 2022 session starts next month. $1 billion of that is one-time cash, which usually goes toward buildings or construction. The remaining $219 million is ongoing.
The amount of extra revenue is bigger, closer to $3 billion, but lawmakers have already spent or set aside a big chunk of that cash. They moved about $800 million of one-time cash and nearly $900 million in ongoing money into the base budget. Those expenditures include $335 million in new funding for public education, retiring the outstanding debt from the construction of the new state prison, paying cash instead of bonding for transit projects and the aforementioned $160 million for tax cuts.
Being flush with cash isn’t always a good thing for lawmakers. Every year, the number of spending requests outstrips the amount of money available. Just like last year, legislative leaders are worried the influx of federal pandemic relief money into the state is artificially inflating revenue.
“The challenge for us is to determine how much of the revenue we have coming in is sustainable and how much of it is a ‘sugar high’ from the federal money,” House Speaker Brad Wilson, R-Kaysville, said.
Wilson says they believe a good portion of that money is not a mirage. Utah is the fastest-growing state in the country and has one of the lowest unemployment rates, which naturally translates into more tax revenue for the state. Hence the push for tax relief this year.
It’s a good bet that a bill carried by a member of the majority leadership in the House or Senate has broad support even before any debate or votes are taken, which is why it’s safe to assume that Vickers’ tax cut bill is likely to pass. If that happens, there’s still at least $135 million available for more tax relief.
It’s entirely possible Vickers’ proposed tax cut could get bigger, or lawmakers could spend the money on other tax relief. Gov. Spencer Cox asked for $160 million to pay for a “grocery tax rebate,” to help with rising food costs, while other proposals to eliminate the state sales tax on food are likely to come forward.