Utah Legislature approves $167 million income tax cut largely benefitting high earners

The Utah State Capitol building in Salt Lake City. Photo: TownLift // Bailey Edelstein

GOP leaders celebrate 4th year of ‘measured’ tax cuts while critics argue there are still unmet needs in education, social services

As expected, the Republican-controlled Utah Legislature has signed off on a $167 million income tax reduction in what will be a fourth year of tax breaks.

SB69, the bill to bring down Utah’s income tax rate from 4.65% to 4.55%, cleared its final legislative hurdle when it won support from the House on a 63-11 vote with three Democrats voting in favor. Last month, it won approval from the Senate on a 23-6 vote.

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The bill now goes to Gov. Spencer Cox.

Republican legislative leaders were planning on the tax cut even before the session began, having set aside $160 million in December for some sort of reduction. SB69’s sponsor Sen. Chris Wilson, R-Logan, carried it smoothly through the legislative process, saying it’s meant to put more of Utahns’ dollars back in their pockets, keep Utah a “competitive” state and stimulate the state’s already thriving economy.

“If we want a strong economy we do not want to tax productivity,” Wilson told the House Revenue and Taxation Committee on Friday. “Taxing productivity stifles the economy.”

The cut comes after lawmakers last year provided $850 million in tax relief, which included a $400 million package to drop the state’s tax rate from 4.85% to 4.65%, an expansion of the earned income and Social Security tax credits, and other forms of tax relief.

That $400 million, however, also included $200 million for a contingent removal of the state’s portion of sales tax on food — that will only go into effect if voters approve a constitutional amendment on this year’s ballot to loosen the state’s earmark reserving income tax for public education and some social services.

At the time, when lawmakers were enjoying an infusion of extra cash amid a hot economy, Utah legislators also celebrated “historic” investments in education, water, housing, transportation and infrastructure.

This year, it’s a different story. As the economy cools and COVID-19 subsidies come to an end, legislative leaders have been saying it’s a much tighter budget year. However, they’re still set on what Wilson called yet another “responsible” tax cut while also balancing other priorities.

“We will continue to ensure education funding remains a priority while giving Utahns more of their hard earned money back,” Wilson said.

While it’s not as much as recent years, lawmakers are poised to use $212 million for a 5% increase to the public education system’s weighted pupil unit, the per-pupil rate used to calculate how much money each school should receive. The Utah Education Association, a teacher union organization, wanted a 12% increase.

Democrats arguing against SB69 said Utah schools continue to face unmet needs. On the House floor Wednesday, Rep. Brett Garner, D-West Valley City, said there continues to be not enough funding for teachers, especially in more diverse areas of the state, like his home city.

“These are real needs that we are choosing not to address so we can give the richest Utahns a couple of thousands of dollars (a year),” Garner said.

Rep. Joel Briscoe, D-Salt Lake City, cited a recent analysis by the Institute on Taxation and Economic Policy, a nonprofit liberal tax policy think tank, that showed SB69 would largely benefit Utah’s wealthiest residents, with over 60% of the cut going to the state’s top 20% of income earners.

For Utahns in the bottom 20%, earning an average of $20,900, they’d only see a $24 annual reduction, according to ITEP. For those who make $46,800, they’d get $43 back. For those making $78,300, they’d get $67, and those earning $124,400 would get $107.

Higher earners like those with salaries of $200,100 would get $174. Those earning $452,400 will get $374. As for the earners in the 1%, making an average of nearly $3.3 million a year? They’d get $2,676.

Briscoe was skeptical SB69’s tax cut would do much to stimulate the state’s economy.

“Every economic course, every economic book, every study I’ve ever read said what the rich do overwhelmingly after they pay for their needs and vacations and other goods is they save,” he said. “It’s not going to be spent.”

Rep. Brady Brammer, R-Provo, disagreed, noting this is one tax cut in several years of reductions.

“It’s fairly common tax theory that as you cut the amount you’re putting into the government — and if you can do it over a sustained period of time through small cuts — the amount of economic productivity increases,” Brammer said.

He also argued Utah’s education system has seen billions more in investment since 2019. “Over that five-year period, (lawmakers have funded) a 57% increase in public education funding,” Brammer said. “All while cutting taxes.”

Brammer added there will “always be new needs” in social services and education programs. “But we have been able to provide more by being fiscally sound and making consistent regular cuts to our income tax rate,” he said. “We have succeeded as a state by cutting taxes, and that has funded education more than it ever has been, as well as social services.”

One Republican, Rep. Marsha Judkins, R-Provo, expressed reservations because “nothing is done in a vacuum.” She noted Utah has other great needs, including thousands of people on the state’s disability waiting list, some waiting “decades to receive help.”

“This is going to be money that’s not going to be used to help them,” Judkins said.

Judkins said even though Utah’s economy has been doing well through these past several years of tax cuts, there’s also a flip side to that argument. There could be other consequences to making Utah an even more competitive state, she said.

“If we’re doing it for the economic growth that it’s going to bring, we’re also spending tens of millions of dollars trying to create more affordable housing because we have too many looking for these homes,” she said. “If we keep growing our economy and bringing people in for that, we’re perpetuating the problem. It seems like we’re robbing Peter to pay Paul.”

She also worried continuing to chip away at Utah’s income tax base will only put more pressure on school districts to raise property taxes “to cover the things that we can no longer cover for them.”

In a Senate committee last month, the bill’s House sponsor, Rep. Kay Christofferson, R-Lehi, said he didn’t think Utah will miss the revenue because “it’ll be steamrolling our economy to where we’ll make that up in other areas.”