Rising inflation has Gov. Spencer Cox thinking about tax cuts next year.
“I do think there is room for tax relief this coming session,” Cox said Thursday during his monthly KUED press conference.
Cox said rising prices across the board are hitting Utahns hard, especially lower-income residents.
“Inflation is the worst kind of tax on the poor. They feel it as far as transportation costs go up, grocery prices go up, everything follows,” Cox said.
He did not offer specifics about what kind of tax relief he favors or how big of a cut he could push for. In passing, he mentioned the state’s 3% sales tax on some grocery items might be a target for tax reduction, but did not elaborate.
Utah Senate President Stuart Adams, R-Layton, says tax cuts are always a possibility, but any discussions are premature.
“We haven’t talked about it. It’s just way too early to be thinking about cutting taxes. We just don’t have enough data. It’s always on the table, but it’s just too early for us to be discussing it,” Adams said.
Lawmakers cut taxes by $100 million during the January session, fixing Utah’s income tax dependent exemption, expanding a state tax credit for retirees, and providing a cut for military members and Utahns on Social Security.
There will likely be pressure to cut taxes. Utah took in $3.2 billion more in taxes in fiscal year 2020-21 than the year before. That eye-popping number is driven by a $2.1 billion increase in individual income tax collections, according to preliminary numbers from the Utah State Tax Commission.
When lawmakers finalized the state’s $22 billion budget for next year, they were already planning on more than $1.5 billion in excess revenue. That was too conservative, which means we should be seeing another big surplus.
The numbers could be impacted by the COVID-19 pandemic. The state had to shift the deadline for filing taxes from April to May to match the federal change. There’s a fear that some collections may have been double-counted.
Rising prices could dampen any enthusiasm for tax relief next year, too. As prices go up, it’s likely that Utahns would cut back on spending, which would lead to a reduction in sales tax and corporate income tax revenue. Increased prices could hit the state budget hard, too through increased prices for construction materials or other goods.
There’s also a persistent fear that Utah’s soaring economy is being artificially boosted by billions of dollars in federal pandemic relief. Direct payments from the federal government led to increased spending by Utahns.
“People got their stimulus check, they went out and bought something. Our sales tax revenues went up because of that. That won’t go on forever and ever. So, are these revenues sustainable over the long run? If they’re not, then we can’t spend it on a tax cut. We’ll need those revenues to pay for government services,” Adams said.
Legislative leaders are already wary about the effect of economic stimulus programs on the state’s revenue picture. Last year they shifted $500 million in tax revenue to one-time money because they feared the money would not be there in the long term, so they didn’t want to use it for ongoing expenses. Expect them to do the same next year, which would take that cash off the table to pay for a tax cut, as it’s an ongoing expense. Adams admits there’s a possibility that one-time money could be turned into a tax rebate, but that’s a long-shot possibility.
Our unique tax system presents another hurdle for any discussion of a tax cut. The Utah Constitution mandates that all personal and corporate income taxes go toward public and higher education, plus some social services for disabled residents. Any income tax cut must come from that pool of money. Adams says their first priority will be to make sure the state’s education system is funded before they turn their attention to cutting taxes.
“I can assure you we’ll make sure the schools are taken care of,” Adams said.
