Even amid large surpluses, Utah lawmakers have to walk a fine line this year on taxes because of inflation, the continuing pandemic and what those forces contribute to an uncertain economy. That suggests a modest tax cut and increased spending in critical areas. It also suggests funding some long-overdue needs.
To guide them, here are five things to keep in mind:
First, lawmakers must recognize the burden every Utahn faces because of an annual inflation rate that now hovers at 7%. As Cicero Institute policy and research director Judge Glock wrote in The Wall Street Journal this week, the idea of a wage-price spiral is false. In times of inflation, wage earners only lose.
Some experts predict companies will give average raises of 3.4% this year. That’s high in comparison to many previous years, but it means a loss of 4.3% in real buying power against inflating prices.
In Utah, consumers face even greater hardships as real estate prices have risen far beyond the general inflation rate. In 2021 alone, home prices grew between 17% and 23% on average along the Wasatch Front. Rents increased between 10% and 15%, as well. People deserve a break in taxes, no matter how small.
Second, they need to keep an eye on making Utah as competitive for jobs and investment as possible. A report from The Hill late last year said dozens of states are planning to cut taxes in 2022. In Iowa, at least one lawmaker is urging his colleagues to do away with the income tax completely. Utah can’t go that far, but its position as one of the best states in which to do business did not happen by accident, and future prosperity is not assured without effort. Taxes are not the only consideration when it comes to attracting people, but lawmakers can’t afford to let them become an impediment.
Third, lawmakers must be prudent, recognizing that current surpluses may be an aberration. Much of today’s surplus comes from federal stimulus money and a surge from pent-up pandemic demand. As state Senate Majority Whip Ann Millner, R-Ogden, said last week, the state doesn’t want a repeat of the Great Recession, in which bad times forced many difficult cuts.
The prudent thing, she said, is to “watch and see what happens next year.”
Fourth, lawmakers cannot ignore the needs of the poor. An income tax cut alone would not help the state’s neediest residents. Eliminating the state’s portion of sales tax on groceries would. So would creating a state earned income tax credit.
Also, extra money should mean extra funding for programs that help the neediest among us, and that includes homeless services.
Fifth, lawmakers should attend to some of the state’s biggest maintenance needs. This includes water infrastructure and measures to preserve the levels of the Great Salt Lake, perhaps the state’s most important environmental feature. It includes schools and public education in general, and it includes earthquake preparedness.
A new report by the Utah Seismic Safety Commission says about 140,000 unreinforced brick homes and office buildings exist along the Wasatch Front. Experts say the worst injuries in a major earthquake would occur to people in or near these. The buildings that suffered major damage in the 2020 quake centered in Magna were of this type. Lawmakers ought to consider ways to incentivize and help property owners to retrofit these structures. The current surplus of one-time money provides a perfect opportunity.
The state Senate already has passed a measure that would reduce the state’s flat-rate income tax rate from 4.95% to 4.85%. That would cost the state a modest $160 million, which the bill’s sponsor said would save a family of four, making Utah’s median income of $72,000, about $98 a year in taxes.
House members are expected to add to it, perhaps providing $40 million more in cuts directed toward the poor.
This isn’t much, but given the uncertainty of the times and the need to catch up with pressing needs, it may be the most prudent path. The Tax Foundation, an independent Washington research organization, ranks Utah 21st in terms of its state and local tax burden. That suggests room for improvement, but no need for alarm.
Especially during volatile and uncertain times, the best footsteps are careful ones where tax cuts are concerned, and bold ones concerning one-time funding needs.