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SALT LAKE CITY — Utahns likely won’t know until late this week whether there’s even a chance they’ll see any tax cuts before the Legislature’s 45-day session ends on March 12.
The final revenue estimates used to finish the spending plan for the budget year that begins July 1 are due after Monday’s Presidents Day holiday. The new numbers will show whether there’s any unexpected increases in the state’s key revenue sources, income and sales taxes.
There’s already a budget surplus this year, but growth in sales tax revenues continues to lag far behind income tax collections as consumer spending shifts from goods to services. That makes it hard to balance the budget because sales taxes make up the bulk of the state’s general fund while income taxes can only go to education.
Lawmakers thought they had that problem solved with a tax reform package passed in a December special session of the Legislature that reduced state income taxes while increasing sales taxes on food, gas and some services for an overall tax cut of $160 million.
Instead, that package ended up being repealed at the start of the regular session due to the success of a citizens referendum aimed at putting tax reform before voters in November, when all of the House and about half of the Senate is up for reelection.
Leaders of the Republican-controlled Legislature have made it clear they want to wait until the 2021 Legislature to tackle tax reform again. But that hasn’t stopped some lawmakers from trying to push for specific tax cuts this session, even though their bills are awaiting committee assignments so they can be heard.
“The only thing I’ve heard in regards to taxes is, let’s see, how does the saying go? We can’t give them the sugar before we give them the medicine,” said Rep. Tim Quinn, the sponsor of HB260, a bill to increase the Utah income tax dependent exemption to offset federal tax changes in 2017 that amounted to a tax hike for many Utah families.
The bill would reduce income taxes by some $50 million, giving some taxpayers an average break of $231 on what they earn this year, while others earning more would pay an average of $59 more because of how the increased exemption would be phased out.
Quinn, R-Heber City, said he doesn’t see his bill as a tax cut.
“Even though it’s a cut to the revenue, we’re just attempting to return what we never should have taken,” he said, adding most of his fellow House members are “thinking, not only should it be done, it should have been done last year or the year before.”
Rep. Walt Brooks said while “it’s wise to kind of take a breath and see what’s happening with the numbers,” he still expects a hearing to be scheduled for his bill, HB181, that sets aside nearly $16 million to provide an average income tax break of $256 on Social Security benefits to Utahns making less than $45,000.
Brooks is pitching his bill as starting the ball rolling on eventually eliminating state income tax on Social Security benefits. Like the increase in dependent exemptions, the tax break on Social Security was part of the tax reform package.
“We need to show that we are committed to tax cuts and we need to build some trust in people,” the St. George Republican said. “People believe a tax hike but they don’t believe a tax cut. So we need to show them that’s what we’re trying to do.”
But legislative leaders aren’t so sure.
“From my standpoint as budget chair, I think this needs to be on hold,” said Senate Budget Chairman Jerry Stevenson, R-Layton. “We’ve got all these givebacks we had in the tax reform package we had. We had some takeaways tied to that. We can’t sit here and just give back.”
Senate President Stuart Adams, R-Layton, said he’s worried about income tax collections slowing down at some point. If that happens, the Senate leader warned, “we’re going to be in trouble funding education. ... Income tax is the most volatile tax. We’ve got to figure out a way to prepare and put stability into that revenue source.”
Whatever the new budget numbers turn out to be, Stevenson said he’s “a little leery” about tax cuts. He said lawmakers “need to hold pretty firm on the givebacks until we figure out how we’re going to put this tax package together,” especially with the possibility the economy could be headed toward a recession.
That would mean a drop in income taxes, Stevenson said. “The thing we need to be worried about is if we get involved in the front end of that in tax deductions, we don’t have a general fund that we can go raid like we did eight or 10 years ago when we had a recession. The general fund is not flush.”
If the revenue estimates are good news, the Senate budget chairman said the extra money should be set aside.
“That’s, I think, the real issue,” Stevenson said. “If money comes in and it’s plentiful, then I think we probably should be looking at putting some money where we have access to it during that downturn. We’re in the longest upswing we’ve ever had in our country right now, and it isn’t going to stay that way forever.”
Sen. Gene Davis, D-Salt Lake City, agreed lawmakers should be cautious.
“I think it’s easier to address the tax issue going forward of need than it is to cut taxes and then go back a year or so later and say we need to raise them,” Davis said.
House Speaker Brad Wilson, R-Kaysville, was less adamant.
Depending on what the new revenue estimates look like, Wilson said “we’ll start the process” of deciding if there will be any tax cuts this year.
“Maybe that should help us once we have the information make a fully informed decision on tax cuts,” he said. “I will say everyone is committed to a tax cut at the right time in the right way.”
Still, Wilson is noncommittal on whether any tax cuts will happen this year, and he may still not have an answer next week because it will take time for lawmakers to sort through the budget. But once those revenue numbers are out, they “will really help us start the process of working through this.”
As for bills to give cuts on dependent exemptions and Social Security benefits, Wilson said next week lawmakers will “have a better idea what the process will look like” for those bills, “but I will tell you with certainty we will not have figured out all of those bills by next week.”
