BROAD COALITION CALLS FOR INVESTMENT IN UTAH’S FUTURE RATHER THAN TAX CUTS, DOCUMENTS $5.6 BILLION IN URGENT UNMET NEEDS

Salt Lake City – On Monday, January 23, 2023 at the Utah State Capitol, a broad and diverse coalition of advocates for the poor, for disabled Utahns, for education, health care, clean air, the Great Salt Lake, transportation investment, and a variety of other popular Utah priorities held a press conference calling on the Utah Legislature to prioritize addressing Utah’s long and growing list of unmet needs over permanent tax cuts that undermine our long-term capacity to invest in Utah’s future.

Utah’s strong economy and rapid recovery from the pandemic, combined with the ongoing impact of federal spending, have generated unexpected state revenues amounting to a reported $3.3 billion available for FY2024. These revenues put Utah in a position to address chronic revenue shortages that have plagued numerous areas of state responsibility. Instead, state leaders have proposed roughly half a billion dollars in permanent tax cuts, tilted unfairly toward the high end of the income scale, as well as additional hundreds of billions in one-time tax breaks.   

These new proposed permanent tax cuts would be over and above the roughly $4 billion that the Legislature has already cut from annual revenues in recent decades, leaving Utah’s taxes at their lowest level in half a century, relative to incomes.

In response, today the Invest in Utah’s Future coalition presented a list of urgent unmet needs amounting to $5.6 billion, over $2 billion more than the amount of the “surplus” revenues.

The advocates also pointed out that, according to data from the Utah State Tax Commission and the Utah Foundation, taxes in Utah are the lowest that they have been in decades, following repeated rounds of tax cutting. “Of course we all like paying lower taxes, but at a certain point we have to ask ourselves: Is it possible to have too much of a good thing? Are we, as the current generation of Utahns, meeting our responsibility, as earlier generations did, to set aside sufficient resources every year to invest in our children, in our future, in the foundations of the next generation’s prosperity and quality of life?” said Matthew Weinstein of Voices for Utah Children.

Speakers also referenced public opinion surveys by the Deseret News and Hinckley Institute that found that only 25% of Utahns support tax cutting over investing in Utah’s future, consistent with other polls done in recent years by the same organizations as well as by Envision Utah and the Utah Foundation.

Here is the list of urgent unmet needs that Utah has not been able to address due to the state’s chronic revenue shortages:

 The press conference was broadcast live on Facebook: https://fb.watch/ieyT_0Zi14/?mibextid=RUbZ1f 

Media coverage: 

• KJZZ: Local organizations oppose statewide tax cuts, call for investments in Utah's future instead 
• Deseret News: Time to invest more in education, housing, water and other areas, group says 
• KUTV-2: Local organizers oppose tax cuts, call for investments in Utah's future instead
• KSL: Don't cut taxes, advocacy groups urge Utah lawmakers. Here's why. 
• UtahPolicy.com  

 Additional one-pagers distributed by some of the coalition members: 

• Circles Salt Lake: Background about Circles and one-pager about benefits cliffs
• Transit: Utah Transit Riders Union info and one-pager about free-fare transit
• Community Action Partnership of Utah one-pager about rural Utah's needs 
• Child care one-pager from UtahCareforKids.org 
• Housing affordability one-pager from Utah Housing Coalition

* * SEE COMPLETE ANALYSIS OF THE LEGISLATURE'S $400 MILLION TAX CUT PROPOSAL AT THE BOTTOM OF THIS PAGE * *

The 2023 Legislature's annual seven-week General Session has begun! At the top of the agenda for the Governor and Legislative leadership: tax cuts. 

While Voices for Utah Children and many other advocates for Utah's most vulnerable populations are deeply concerned about the long-term detrimental effect of tax cuts on state and local governments' abilities to meet their obligations to Utahns (see www.InvestInUtahsFuture.org for more about that), we are also cognizant of the political reality that tax cuts are popular with Utah's political leadership (in contrast to public opinion).

If there's one thing Voices for Utah Children has learned following tax policy in recent years, it's that not all tax cuts are created equal. Hence this guide to the tax cuts being proposed this year. Note, the legislature has since changed the proposed income tax cut from $200m to $400m further resulting in even greater tax cuts mostly for Utah's top income earners. 

Ranking the Tax Cut Proposals

We rank the tax cuts by regressivity -- do they make our overall tax system more or less regressive than it currently is? Regressivity is about fairness. Utah's current overall state + local tax system is regressive/unfair in the sense that the highest income households pay a lower overall share of their incomes in state and local taxes than low- and middle-income households.

The chart above illustrates whether each individual proposed tax cut would make Utah's taxes even more unfair, or would it reduce the inequities in the current tax structure. We illustrate the impact of the proposals in the chart below two different ways:

1) By share of the tax cut: How does it slice the pie? Who gets the big pieces and who's stuck with the crumbs (or nothing at all)? 

2) By dollar amounts: How much does an average family benefit each year at each income level? (we provided this information for each tax cut that is available to all taxpayers but not for the more targeted ones that only go to a smaller subset like the Social Security and child tax credits)

Important Background Information

What are the major taxes in Utah and who pays them?

• The sales tax: Our most regressive tax -- meaning it takes a bigger bite percentage-wise out of the incomes of low- and middle-income families than their high-income neighbors. (And same goes for the gas tax.)
• The property tax: Not as regressive as the sales or gas taxes but still costs lower-income families a greater share of their incomes than higher-income families, including non-homeowners who pay it indirectly through their rent.
• The income tax: Utah's only non-regressive tax. The only one that lines up with Utah's income distribution, following the 3/5--1/5 Rule: Three-fifths of all Utah income is earned by the top one-fifth of taxpayers, and three-fifths of the income tax is paid by that same high-income group. KEEP IN MIND: When the Legislature cuts the income tax rate, not only do they make our tax system more regressive overall, they also put more pressure on local property taxes, which tend to rise to make up for the lost education funding when the income tax rate is cut. As a result, cutting the income tax means a tax shift from state to local and from the highest-income Utahns to middle-class and low-income households. 

See more details about who pays which taxes in Utah and how our overall tax structure is regressive at www.ITEP.org/WhoPays/Utah. 

How Do These Proposed Tax Cuts Compare to Last Year?

Last year, the 2022 Utah Legislature passed SB 59 -- about $200 million of permanent tax cuts.

• The majority of the breaks went to the highest income fifth of Utahns, those earning above about $130,000.
• Just 6% of last year's tax cuts went to the bottom two-fifths of Utahns, those earning under about $60,000 a year.

2022 SB 59 Tax Cuts Summary

ANALYSIS OF THE 2023 LEGISLATURE'S $400 MILLION TAX CUT PROPOSAL

Every December Congress meets to try to pass all the urgent items they didn't manage to get done the rest of the year. Usually the list includes tax policy changes demanded by one well-heeled special interest or another. This year is no different. At the top of the lobbyists' wish list is reportedly "extending soon-to-expire business tax breaks... affecting research and development costs, investment deductions and debt write-offs."

But what about the tax policy issues directly impacting Congress's youngest constituents? It's true that children don't have fancy lawyers and lobbyists and PACs making big campaign contributions. But they do have a few scrappy nonprofits speaking up for their interests and backed by millions of parents. And at the top of the children's wish list this month is improvements to the federal Child Tax Credit. 

The federal CTC does a world of good every year for families all over Utah and across the nation.  Well over a third of Utahns qualify for the CTC every year when they file their taxes. That's over half a million households! And the amount of the CTC received by these Utah families exceeds $1.6 billion -- that's billion with a b. Wow! 

But there is a problem with the Child Tax Credit. Tens of thousands of Utah families fail to qualify every year for the full credit of $2,000 per child for a simple reason: The parents work low-wage jobs -- often working long hours -- but their low hourly wages still leave their incomes below the minimum level required under current tax law to qualify for the full credit -- over $29,000 of income for a single parent with two kids, for example. In other words, a single mom working full-time at $12/hour makes too little to qualify for the full CTC under its current rules. 

That means over 150,000 Utah kids every year are left out and left behind -- and these are the very kids who would benefit most from the proven positive impacts of refundable tax credits like the CTC -- including better educational outcomes and higher labor force participation rates years later when they become adults.  

And it gets worse: While most of the kids excluded from the CTC are white, disproportionate numbers of them are from Utah's communities of color, including an estimated 50,000 Latino children, comprising 29% of Utah’s Latino child population, as well as 6,000 Native American children, comprising 75% of Utah’s Native American children. This means that a tax credit that has incredible potential to reduce societal disparities is instead making them worse. 

That's a real shame, because the CTC does a lot to reduce child poverty already. National data from the Census Bureau's Supplemental Poverty Measure has found that refundable tax credits, including both the Child Tax Credit and Earned Income Tax Credit, reduced child poverty from where it would have been -- 18% or one-in-six children -- to 12.5% or one-in-eight children in 2019. That's over 4 million children lifted out of poverty. And if we could make the full CTC available to all the lower-income kids now being left out, that would help an additional 19 million children who need the help most. 

Even if Congress lacks the political consensus to restore the temporary 2021 CTC boost that cut child poverty last year by 36%, there are several more incremental ideas that would help a lot of kids: 

• Implement a more rapid phase-in of the refundable credit, as proposed by Sen. Mitt Romney in his Family Security Act 2.0 proposal from earlier this year.
• Make the full credit available without a phase-in for families with children under the age of 6. 
• Exempt from the phase-in grandparents acting as custodial parents and parents whose disabilities impact their ability to work.
• Institute a look-back policy that counts previous years' earned income in determining whether a work requirement has been met.
• Restore the pre-2017 status quo where all children in immigrant families could receive the CTC.

The role of Utah's Congressional delegation in any Child Tax Credit improvements passed this month is expected to be one of the keys to success. After all, it was Utah Senator Mike Lee who demanded that Congress include improvements to the CTC in the 2017 TCJA legislation (though that law also cut off an estimated 1 million immigrant children without Social Security numbers from the credit). And it is Senator Romney who has put far-reaching additional improvements on the table with his Family Security Act proposals. 

If you agree that Congress should act this month to improve the Child Tax Credit, let your Representative and our two Senators hear from you!  Lifting more kids out of poverty would truly be a wonderful holiday gift for Utah's children this year. 

The story of tax policy in the 2022 Legislative session is a tale of two tax cuts:

• • A large, top-heavy cut to the income tax rate from 4.95% to 4.85%. How large? $164 million. How top-heavy? 63% of it goes to the top 20% of taxpayers. all of whom have six-figure incomes. 
  • The creation of a small ($16 million, just one-tenth the size of the income tax rate cut) state-level Earned Income Tax Credit. The EITC is widely considered to be the nation's most effective anti-poverty program, since it reduces poverty by promoting work and self-sufficiency. Special recognition goes to Rep. Mike Winder, who, in his final legislative session, leaped at the opportunity to sponsor HB 307 and persuade his colleagues that 2022 was the year to make Utah the 31st state with our own EITC, something that advocates for reducing poverty have sought for decades.

The new Earned Income Tax Credit is non-refundable, which means it will not reach the lowest-income fifth of Utah workers who need it the most, including those struggling to work their way out of intergenerational poverty. About 80% of the value of the federal EITC is the refundable portion, which offsets other federal taxes paid by the lowest income workers. Most state level EITCs are also refundable, allowing them to offset the sales, gas, and property taxes paid by low-income workers to state and local governments. In Utah, the lowest income workers pay, on average, 7.5% of their incomes in those taxes, which is a higher share of their incomes than that paid in all state and local taxes by the highest income Utahns. The new nonrefundable EITC will help moderate income Utahns (the second fifth of the income distribution), primarily those earning between $30,000 and $55,000. Moderate income Utah families certainly need the help, so the creation of a Utah EITC is a great step in the direction of better tax policy. We hope that Utah will soon follow in the footsteps of other states that began with a non-refundable EITC and then decided to make it refundable.  

The income tax rate reduction continues an unfortunate pattern in recent decades of tax breaks for those who need them the least -- tax breaks that both increase inequality and starve Utah's schools of the resources they need to succeed. In 2007 we cut the top income tax rate from 7% to 5%, then in 2018 to 4.95%, now this year to 4.85%.  The income tax is the only non-regressive tax Utah has, the only one that actually lines up with Utah's income distribution. Ironically, as income inequality worsens, it is also Utah's fastest growing source of revenue, which offered Utah our best hope for seeing our education system benefit from Utah's rapid economic growth -- until we began targeting that rapidly growing revenue source for tax cuts.  

Here is a summary chart of this year's tax cuts and how they impact Utahns in each fifth of Utah's income distribution:

Source: Utah Legislative Fiscal Analyst (excluding the $15 million corporate portion of the income tax rate cut) 

Another way to think about the income tax rate reduction from 4.95% to 4.85% is to consider how it impacts a median income family of four. According to the Legislative Fiscal Analyst, such a family receives a tax cut of $98. But when you divide the $164 million price tag of the income tax rate reduction by Utah’s K-12 student population of about 675,000, then multiply by the two kids that the median income family of four has in school, you see that that average family that is gaining $98 in a tax break is giving up $485 that is now not going to be spent on their kids’ education every year. Not going to be spent on smaller class sizes or more experienced teachers or more up-to-date technology. Not going to be spent on closing the gaps in our education system between majority and minority groups and between haves and have-nots, gaps which are larger than nationally. 

It's also important to see this year's income tax rate cut in the context of decades of top-heavy tax breaks passed by the Legislature. According to the Utah State Tax Commission, Utah has been passing, on average, $100 million a year of new tax breaks for over 35 years. This now adds up to over $3.5 billion not available every year to invest in Utah's children -- their education, health care, and basic economic security. In fact, the Invest in Utah's Future Coalition has identified over $5 billion of unmet needs in a wide range of areas of public responsibility. 

For a full summary of this year's legislative actions on taxes, you can....

• Download our Powerpoint slideshow summary 
• View a video recording of our presentation "Utah Legislature's 2022 Tax Changes: What happened and how will it impact Utah children" at https://fb.watch/bpbVN8Mwms/ 

Voices for Utah Children Statement on the News that the Legislature Is Considering a Constitutional Amendment to End the Education Earmark of Income Tax Revenue:

A Constitutional Amendment Won’t Help If Utah Keeps Cutting Taxes

It is understandable that Utah legislators would want greater flexibility in how they can use public revenues. But there is a much larger problem that increased flexibility would do nothing about and would even delay solving: the chronic public revenue shortages that afflict our state following decades of tax cutting.

Utah has been cutting taxes by an average of $100 million annually for at least the last 35 years. According to Tax Commission data (see slide #8), this now adds up to about $3.5 billion in revenue not available for Utah’s annual state budget every year. As a result, public revenues are now lower than they've been in half a century relative to Utahns' incomes. The decisions in recent decades by Utah's Governors and Legislatures to give in to the tax cut temptation are at the root of Utah’s chronic revenue shortages in nearly every imaginable area of public responsibility, as documented by the Invest in Utah’s Future Coalition.

This year’s decision to pass a $164 million cut in the income tax rate from 4.95% to 4.85% (SB59 1st sub fiscal note) is an unfortunate example of this impulse toward thinking about short-term gain rather than the long-term needs of our state. This change gives a middle-class family of four a $98 tax cut, but it also means that $485 will now not be invested in that family’s two children in school. ($164 million divided by 675,000 children in Utah’s K-12 education system multiplied by two kids)

Every Utah family with children should ask the Governor and Legislative leaders, “Will you use this increased flexibility to enact even more tax cuts that deprive our children of the education that they need and deserve?” If our leaders are not prepared to answer that question unequivocally, then Utahns should know that such an amendment would just enhance budget writers' ability to "rob Peter to pay Paul" and not address the root cause of Utah’s problem.