Utah lawmakers like to argue that cutting income taxes means Utahns will keep more of the money they earn instead of giving it to the government. And for the third year in a row, they’ve teed up more cuts for 2024.
The Legislature is on the verge of dropping Utah’s income tax rate from 4.65% to 4.55%, meaning those Utahns with the highest incomes will benefit the most from the cut, while those at the middle and bottom will get far less.
Not satisfied with cutting taxes by $480 million in 2022 and 2023, Republican leaders have been eyeing another round of tax reductions for months. The process started in December when legislative leaders voted to put aside $160 million to cut taxes in 2024. The price tag jumped slightly to $167 million after new revenue projections showed the state was on track to collect more income taxes this year than first anticipated.
According to an analysis from the Institute on Taxation and Economic Policy, a liberal Washington, D.C.-based think tank, more than 60% of the money from those cuts will go to taxpayers at the top 20% of the income scale. Earners with an average income of $200,000 will see a median reduction of $174 per year. The top 2-5% of earners, those who make around $452,000 annually, will see their tax bill drop by $374 annually. The top 1% with an average income of $3.29 million will see a median reduction of $2,676 annually.
Utah taxpayers who earn enough money to take advantage of the income tax cut will split what’s left over. The average taxpayer who earns $124,000 per year will see their taxes drop by about $9 per month. Those earning approximately $80,000 annually get a $5 monthly boost in their take-home pay.
Utahns with an income of less than $33,000 will receive, on average, $2 extra per month. And only one in five taxpayers in that group can claim the tax cut because they don’t earn enough to pay taxes or have their tax liability zeroed out because of tax credits for low-income residents.
Rep. Kay Christofferson, R-Lehi, brushed off concerns that the majority of tax savings would flow to the top of
“Those people who add to the economy are the ones that benefit from this, and then they can use that money in the way they see best to continue to add to the economy. That engine helps everyone,” Christofferson said during a House committee hearing on the bill. “It helps those who are poor and those who are sick. It helps invite businesses in because of the low taxes. And I think it just is a good way to incentivize the acceleration of our economy and our state.”
Moe Hickey, executive director of the low-income advocacy group Voices for Utah Children, says lawmakers should do a more targeted tax cut that benefits more people, not just those at the top.
“The money could meet unmet needs like childcare, pre-K, mental health services, or tax credits that are refundable to benefit those needing support,” Hickey said.
While lawmakers simplisticly explain cutting income taxes is just letting residents keep more of the money they earn, there is a cost.
The money to pay for those reductions comes at the expense of future income tax revenues that could pay for education and some social services. Under the Utah Constitution, every dollar the state collects from personal and corporate income taxes can only be spent on public and higher education and social services to benefit children and disabled Utahns. Including income tax cuts from this and recent years, nearly $650 million less is available to fund those areas of the budget every year going forward.
The tax cut bill advanced out of the Senate and awaits a vote in the House of Representatives. So far, the bill has passed with only Republican support.
The final passage in the House before the end of the 2024 session is all but guaranteed as legislative leaders voted to include money to pay for the cuts in their initial round of budget recommendations they approved late last week.
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