For the past few years, Utah has consistently experienced significant ongoing surpluses – money that will be collected in excess year after year – in income tax revenues. Despite this, budgeting in Utah has remained difficult.
Why?
Utah’s Constitution requires nearly all of income tax revenue to be spent on “education.” As has been anticipated for the past few decades, this arbitrary requirement – which is unique to Utah and not in place in any other state – is causing Utah to fall behind.
Take a look at the individual income tax, for example. After years of Utah’s flat income tax – currently at a rate of 4.65% – being viewed as competitive, it is now just average. As people and jobs have continued to move out of high-tax states and into states with low and no income taxes, a growing movement of states have been reducing their income tax rates with a goal of phasing them out completely.
Today, there are eight states – including Utah’s neighbors Nevada and Wyoming – that do not impose individual income taxes of any kind. New Hampshire – which does not tax wage income – will be the ninth state added to the “no income tax” list as soon as it completes a phase out of its 4 percent tax on interest and dividends.
To compete with these states for investment, jobs and opportunities, lawmakers in more than a dozen states have delivered historic income tax cuts.
Arizona lawmakers used the 2021 and 2022 legislative sessions to streamline their income tax, which had a top rate of 4.5%, down to a flat rate of 2.5%. Key officials in the House and Senate have made clear that this the first step on the path to zero.
Lawmakers in Iowa and Mississippi are working to see their states become the tenth “no income tax” state. Last year, they passed legislation to reduce their income taxes, which currently have top rates of 6% and 5%, to flat rates of 3.9% and 4% by 2026.
Kentucky lawmakers are working to put their state on the “no income tax” list. Last year, they delivered a law that will reduce Kentucky’s flat income tax by 0.5 percentage points every time certain triggers are met until it hits zero. This new law has already taken Kentucky’s flat income tax of 5% down to 4.5%, and will lower it to 4% in January 2024.
As this competition continues to heat up, inaction will cause some states to fall behind. Utah lawmakers are aware of this trend and do not want Utah to become less competitive. Sadly, the earmark on income tax revenue complicates the overall budgeting process and has made common sense reforms difficult.
But that could soon change.
SJR10, which was passed during the 2023 legislative session, will refer a constitutional amendment to that ballot that – if approved by voters – would remove this dated earmark. This measure would make it easier for lawmakers to use tax dollars efficiently and simplify the budgeting process, ultimately making it easier to deliver reforms that would ensure Utah remains competitive with other states.
Contrary to some opinions, this constitutional amendment would not hurt education outcomes in Utah. The Legislature would still have all of the resources necessary to ensure teachers and schools are properly funded. It would simply make it easier to manage the overall state budget while also providing substantial funding for education.
Adding to this great news, voter approval of this measure would also trigger the elimination of the state sals tax on groceries. This would allow households across Utah to keep more of their own money.
The upcoming 2024 constitutional amendment would be a huge win for all Utahns. It will increase efficiency in the state budget and ultimately create more opportunities for pro-growth policies that will ensure Utah remains an attractive place to live, invest, do business and raise a family.
Grover Norquist
Grover Norquist is the president of Americans for Tax Reform in Washington, D.C.
Rusty Cannon | Utah Taxpayers Association
Rusty Cannon is the president of the Utah Taxpayers Association