Utah’s red-hot economy may be slowing down.
For the past few years, legislative leaders have been anticipating an economic downturn, and then are surprised when revenue forecasts come in higher than expected, giving them extra money to spend in the annual budget. That’s not the case this year.
Revenue estimates unveiled this week showed ongoing, and one-time income tax revenues fell by $230 million combined, while one-time and ongoing revenue generated from sales and gas taxes rose by the same amount.
Legislative leaders characterized those projections as “flat,” but that doesn’t mean it’s time to start digging in the couch cushions for extra money. Most of the decline in income tax revenue results from a drop in corporate income taxes, down almost 10% from last year. Personal income tax collections have grown nearly 25% this year, but legislative fiscal analysts expect them to cool down significantly. Sales tax collections are projected to grow by 5.5%.
The new projections give lawmakers an extra $400 million in ongoing funds and $800 million in one-time money to spend in next year’s budget. That’s essentially the total they anticipated before the session, but they thought there would be more income tax revenue and less from other sources. That’s in addition to the more than $2 billion in surplus revenue available before the start of the session.
Those numbers will help lawmakers shape next year’s budget, which legislative leaders will unveil on Friday evening. But, even before the new projections, there wasn’t enough cash to fund the more than $3.2 billion in spending requests this year.
Declining revenues can have lawmakers reaching for the economic panic button, but Legislative leaders aren’t spooked — yet.
“It is something we should pay attention to,” House Majority Leader Mike Schultz, R-Hooper, said. “Anytime you start seeing a downtick in the economy, that’s what you see.”
That word of caution does not include hitting the brakes on the “historic” tax cuts lawmakers promised at the beginning of the session. They’ve already set aside $400 million of the surplus revenue for that purpose and put the bill on a fast track.
Almost all of that $400 million will go toward lowering Utah’s personal and corporate income tax rate from 4.85% to 4.65%. The rest of the cash will provide some modest tax relief for social security recipients and a slight increase in the earned income tax rate for lower-income Utahns.
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During Wednesday afternoon’s floor debate on the tax cut package, Rep. Joel Briscoe, D-Salt Lake City, pointed out that lowering the income tax rate would primarily benefit Utahns at the upper end of the income ladder.
“When you get to people in Utah who have an adjusted gross income of $235,000 a year, they’ll see around $2,000 a year. When you get to people who make $638,000 a year of adjusted gross income, it varies between $5,000 and $9,000 a year. It’s just my personal opinion that these are not the people who need a tax cut,” Briscoe said.
Rep. Brady Brammer, R-Highland, pushed back forcefully against Briscoe, all but accusing him of fomenting class war.
“When we hear things saying that the rich will receive more of the tax break than the poor, that is true, and it is true because they are paying more of the taxes. The problem that we have is that when it comes to tax policy, envy can be easily disguised as false morality. If we want to target people that are struggling, we have good programs to do that, but we don’t do that through our tax policy,” Brammer said.
The House overwhelmingly approved the tax cut package on Wednesday afternoon, sending the measure to the Senate, where it is expected to meet little resistance.