Do these proposed tax cuts favor the rich or poor?

The legislature is proposing a state income tax rate reduction, a constitutional amendment to require income tax be used for education and removal of the food sales tax

By Frank Pignanelli & LaVarr Webb

No legislative session would be complete without deliberations on taxes. Lawmakers are now considering tax cuts and tax realignment. We’ve paid taxes for so long we’re professionals at it, so we offer our two cents (wish it were only that much ...).

A state income tax rate reduction from 4.85% to 4.65% is likely to pass. Is this necessary? Also, key lawmakers want to amend the Utah Constitution to remove the earmark requiring income taxes to be spent on education and some social services — with a sweetener. If voters approve the amendment, the state portion of the sales tax on food will be removed. Why is the Legislature touching this controversial topic again?

Pignanelli: “In levying taxes and in shearing sheep it is well to stop when you get down to the skin.” — Austin O’Malley

For decades, I fielded inquiries questioning legislative rationale of reducing some tax or fee. In response I remind these otherwise intelligent people that local lawmakers reflect a predominant conservative attitude that subscribe to lowest possible revenue intake. Officials also worry a series of surpluses left unchecked will increase state government beyond a normal rate which will be problematic in lean years. Of course, the historical observation that no person lost an election by voting for a tax decrease is relevant.

LaVarr and I remember the late 1980s when Utah was the only state suffering a deep recession with a devastated environment for jobs. Thus, efforts to keep the tax rate competitive with surrounding jurisdictions to maintain and recruit businesses will keep employment strong.

The income tax dedication to public education appropriately haunts the Legislature. If the Legislature attempts another remedy through a constitutional amendment, lessons from prior activities will be helpful. Strong messaging reflecting the popular perceptions, through an aggressive outreach campaign to voters is needed to explain the rationale.

Fortunately, many hot button issues were resolved early in the session to allow intense debate on tax issues that will assure the electorate any results are not last-minute exercises.

Webb: There’s a lot to unpack here. First, Utah already has relatively low taxes that have helped produce arguably the nation’s best economy. I hate to see the tax base further eroded by permanent tax cuts in such uncertain economic times.

We are enjoying great times in Utah, but the national and international economies are far from secure. The world is a scary place right now. Inflation and interest rates remain very high, reducing economic activity and ballooning the federal debt. Tensions are elevated with China and Russia. China could cripple our economy by strategically cutting off exports and banning U.S. imports. The war in Ukraine could expand. China could invade Taiwan.

Now is the time to save and bolster Utah’s future by investing in education and putting surplus dollars into “working rainy day funds” by spending on infrastructure and other one-time projects.

I believe Utah citizens would rather have top-in-the-nation education and an outstanding transportation system than have their taxes cut by an amount barely noticeable.

I support a constitutional amendment providing more flexibility in the use of income tax revenue. But instead of eliminating the state tax on food and eroding the tax base, we should send low-income people a check amounting to more than they would pay in food sales tax. That provides the help where it’s needed. Wealthy people don’t need a tax cut on food purchases.

Democrats and some Republicans are making accusations that the various proposed tax policies benefit the wealthy and harm the poor? What is the reality?

Pignanelli: There was an easy formula when I served in the Legislature: income taxes are progressive and fair; sales taxes are regressive and bad. Unfortunately, such simplicity does not exist today as questions regarding who is benefiting are not easily answered. For example, a recent study by the Utah Taxpayers Association alleges that decreasing the sales tax on food favors the wealthy. Added into the mix are proposals to help those with fixed or lower income by increasing threshold exemptions on taxing Social Security and increasing the earned income tax credit. A potpourri of reductions may be the safest route.

Webb: According to the Legislature, the income tax reduction would cut taxes for low-income households by 22%; middle-income households by 6%, and high-income households by 4%. That seems fair. It’s true that higher income people might see more relief in actual dollars. But that’s because they pay a whole lot more in taxes overall.

In his budget address, Gov. Spencer Cox proposed a one-time rebate to be distributed from the surplus to all Utahns. Is that still on the table?

Pignanelli: The proposal is on the menu but unlikely to be selected. These resources will be directed towards other targets.

Webb: I like the governor’s proposal. In such uncertain times, a one-time rebate is a better way to provide tax relief than permanent cuts. Taxpayers get some benefit this year, but the money is available in future years if needed to maintain education and other critical services. A rebate buys time to see how the economy performs.