Republican lawmakers promised a tax cut before the start of the 2022 Legislature, and they are wasting no time making good on that promise.
Friday morning, on a straight party-line vote, the Utah Senate passed SB59, which drops the state income tax rate for individuals and businesses from 4.95% to 4.85%. The latest iteration of the bill also makes some business supplies tax-exempt.
Sen. Dan McCay, R-Riverton, said the tax cut is a crucial tool to keep Utah’s economy growing.
“If you look around to other states, you have Colorado that’s already down to 4.6%. You have other states that are looking at lower rates as well,” McCay said. “I think you’ll see Utah continue to make those steps in a measured and appropriate way as we continue to have a growing and bustling economy.”
Fourteen states cut taxes in 2021, with more states joining the tax cut parade this year.
The average Utah family with an annual income of $72,000 would see a tax cut of about $100. Those families probably won’t notice that cut much, if at all, with rising prices due to inflation.
It’s no secret why lawmakers are zealous about tax cuts. There’s more than $1 billion in extra revenue available. Plus, it’s an election year.
But why the rush? The Senate approved the bill on a single vote instead of the usual two rounds of consideration. Senate budget leaders are eager to begin negotiations with their House counterparts, so it makes little sense for them to sit on the bill any longer than they have to.
“We need to be able to figure out what’s left of our budget so we can do the rest of the budgeting process,” Sen. Jerry Stevenson, R-Layton, said.
There could be another reason why lawmakers are in a hurry, as there are some early warning signs that Utah’s red-hot economy may be starting to cool ever so slightly.
The latest revenue projections from the Governor’s Office of Planning and Budget show income tax collections over the first six months of the current fiscal year dropped nearly 11% compared with the previous year. Utah saw income tax revenue of $2.8 billion in that period, which is still within revenue projection targets but closer to the lower end.
Corporate income tax collections are still far ahead of projections but show signs of slowing down. Collections are still outpacing projections by nearly $100 million.
In December, legislative leaders put aside the $160 million for this tax cut proposal, so there’s little sense in waiting. Unless they decide to increase the size of the tax cut or add other tax reductions, that possibility is still very much on the table.
“It’s a work in progress. I don’t think we’re done cutting taxes,” Senate President Stuart Adams, R-Layton, said.
Adams suggested further expanding state tax credits for Social Security recipients or an earned income tax credit to help lower-income Utahns but made no promises.
Any cut in income taxes means a reduction in revenue that goes to public and higher education. GOP leaders said that’s not a worry as they are focused on making sure schools are adequately funded. They’ve already set aside $335 million into the public education budget, including $263 million to cover enrollment growth and inflation. There’s also $72 million to boost per-pupil funding next year. Lawmakers have to balance any further tax reductions this year with a decrease in future revenue for schools.
Education officials are worried that lawmakers could tip the scales toward tax cuts. Heidi Matthews, President of the Utah Education Association, the state’s most prominent teacher’s union, said her group is taking a wait-and-see stance right now.
“Our students, schools and communities have so many needs. These critical needs must be funded before we consider any tax cut,” Matthews said in a statement to The Tribune.
Legislators won’t know for sure how much money they’ll have to spend until the consensus revenue projections come out around the middle of February.
