Despite signs that Utah’s economy is cooling down, legislative leaders are again eyeing tax cuts ahead of the 2024 session, which begins in January.
On Tuesday, legislative leaders set aside $160 million to pay for yet another tax reduction. This comes after the “historic” $480 million tax cut package they approved earlier this year. Lawmakers have reduced taxes by about $1 billion since 2021.
A $160 million tax cut would drop the income tax rate from 4.65% to 4.55%. If the new reductions follow the pattern from previous rate slashes, they would mostly favor higher-income Utahns. For example, when lawmakers dropped the income tax rate from 4.95% to 4.85% in 2022, the reduction saved the average Utah family earning $72,000 annually about $8 a month.
Using the same revenue projections as lawmakers, Gov. Spencer Cox did not include any tax reductions in his budget proposal for fiscal 2025 that he unveiled Tuesday morning.
According to legislative budget staff, there’s not much extra money for lawmakers to spend next year — just $134 million in one-time money and $534 million in ongoing funds. Lawmakers were warned, however, that $150 million of that ongoing revenue should be considered “high risk,” meaning it may not materialize at all. The $160 million reserved for possible tax cuts would eat up nearly half of the revenue next year that isn’t considered “high risk.”
The decision to plow ahead with tax cuts comes as new revenue estimates presented to lawmakers Tuesday afternoon show income tax revenue last year was nearly $120 million lower than previous estimates. However, the latest projections expect those revenues to increase slightly in the current fiscal year and grow by more than 3% in fiscal 2025.
Utah’s Constitution requires income tax revenues to only be used for public and higher education and some social services for disabled residents. That means any tax cuts are paid for out of future revenues that could go toward those purposes.
New House Speaker Mike Schultz, R-Hooper, says he hopes to pay for the tax cut package, in part, by finding places to cut the state budget. Appropriations committees will be tasked with scouring current budgets once the session gets underway in January.
“Quite honestly, our state budget has grown at a pace faster than what the population has increased and faster than inflation,” Schultz said. “We’re looking at a few programs that are probably not as efficient as we thought they might be.”
Schultz added: “Anytime we can have the opportunity to ease the burdens of the taxpayers of the state of Utah, I think it’s a good thing.”
Hoping to simplify the budget process, lawmakers have proposed changing that constitutional earmark to allow income tax revenue to pay for more parts of the state budget after certain funding goals for public schools are met. However, that proposed change won’t impact next year’s budget process. It will go into effect in 2025 only if a majority of voters approve the change next year.
Legislative leaders also shifted more than $1 billion in appropriations for debt reduction out of next year’s base budget. Those funds will now go to pay for infrastructure projects next year. Another $100 million in set-asides will go toward compensation increases for some state employees.