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SALT LAKE CITY — At a time when state lawmakers are considering several initiatives to raise taxes, Utah's tax burden is at a 20-year low due to pre-recession tax cuts, according to a Utah Foundation report released Wednesday.
The state's tax burden has decreased on average by 62 cents every year, putting 2012's tax burden at $112 per $1,000 of personal income. Just five years before, Utah's tax burden was at its 20-year high of $125, the report states.
While Utahns are devoting a smaller portion of their paychecks to state taxes, some worry that a lower tax burden means an underinvestment in public services, such as education, transportation, disabled assistance and mental health services.
Matthew Weinstein, fiscal policy director for Voices for Utah Children, said the Utah Foundation report "sets off alarm bells" about state funding priorities.
"The time of this diminished investment couldn't be worse because Utah is now increasingly a diverse state," Weinstein said. "Our historic trend has always been the cohesiveness of our communities and tremendous volunteerism of our citizens. But as we become increasingly diverse in so many ways, that creates new challenges, and it's not a time to be diminishing our efforts."
Property, sales and individual income taxes make up nearly 70 percent of Utah's tax burden, with corporate income taxes, motor fuel taxes and mandatory fees comprising another 20 percent.
If we want to continue to reap the benefits of the tremendous quality of life and our standard of living, we need to be prepared to invest in our state, invest in our future, invest in our children. And Utahns have always been willing and able to bear that.
–Matthew Weinstein, fiscal policy director for Voices for Utah Children
Utah ranks near the middle of the pack for tax burdens nationwide, just $5 beneath the national average. But that could change as legislators look at possible tax increases during the 2015 legislative session.
Proposed legislation would change the state's gas tax from a fixed amount per gallon to a sales tax model in order to adjust transportation revenues for inflation. Another bill proposes to increase the personal income tax by 1 percent to provide additional dollars for education, which have previously been diverted to transportation budgets.
Weinstein said he hopes lawmakers will come to a consensus about how to provide funding for transportation without having to draw on funds needed for education and other services.
"If we want to continue to reap the benefits of the tremendous quality of life and our standard of living, we need to be prepared to invest in our state, invest in our future, invest in our children," he said. "And Utahns have always been willing and able to bear that."
A separate report released Wednesday by the Institute on Taxation and Economic Policy showed that Utah's tax system, like those of most other states, follows a regressive model, where families of lower incomes are taxed a larger share of their earnings than wealthier families.
That isn't so for the personal income tax, which is more progressive, but sales and excise taxes take a heavier toll on lower wage families, which spend a greater percentage of their income on providing care for children.
Utah families with incomes in the lowest 20 percent spend about 6 percent of their total income on sales and excise taxes, whereas those in the top 20 percent spend an average of 2 percent on the same taxes, the report states.
"It's true that most states have an overall regressive tax system because the sales tax is such a prominent part of financing state government," said Stephen Kroes, president of the Utah Foundation. "When you look at overall national taxation, the federal income tax is very progressive, and that somewhat compensates for the states being regressive."
Tax reductions in 2007 included lowering sales taxes on food, which has reduced regressive taxation in Utah. The state ranked 34th on the institute's list, with better taxation equality than most states.
Utah's funding structure has also shifted toward relying more on fees for public services rather than levying new taxes. In 1993, fees represented one-fourth of Utah's tax burden. By 2012, fee contributions had risen to one-third of the tax burden, according to Christopher Collard, a Utah Foundation research analyst.
Utah ranked third in the nation in highest burden of college tuition and fees, despite having the third lowest tuition rates. The burden is due to Utah's larger school-aged population and higher enrollment rates, the report states.
Fees have taken a more prominent role in funding for other states because they are often easier to adopt than statewide taxes, and they are better able to target specific public services. This, however, can lead to uneven burdens in public funds, according to Kroes.
"It becomes less appropriate to increase fees on people who are poor and charge them for services they need from the government," he said. "That becomes more of a regressive influence."
