Opinion: Utah has over a billion dollars in tax surplus — where is it going?
Utah now has a $1.4 billion budget surplus. Many lawmakers are worried about being prepared for hard times ahead, but collecting too much money also inhibits economic growth
Utah lawmakers have a well-deserved reputation for fiscal prudence and careful budgeting. But the definition of prudence may soon change from worries over saving enough for hard times to concerns about keeping too much of the people’s money.
When governments continually collect more than they need, it quickly becomes obvious that a lower collection rate would leave more money in pockets and stimulate the economy.
Surpluses in state funds keep piling up. Partly, this is due to a persistent and robust 2% unemployment rate that has pushed up wages, which in turn has pushed up income tax receipts. But sales taxes were up by 17.5%, as well, in the fiscal year that ended June 30, although they fell off a bit toward the end — a result, no doubt, of inflation, as well.
In all, the State Tax Commissions Revenue Snapshot for the end of the fiscal year showed that the general and education funds collected $11.5 billion.
Earlier this year, the Legislature’s Executive Appropriations Committee estimated collections would be $10.1 billion. As a result, the state is sitting on a $1.4 billion surplus, a condition so common now that the Utah Taxpayers Association has called it a “broken record.”
Last year, lawmakers enacted a modest (some would say tiny) income tax cut, from a flat rate of 4.95% to 4.85%, which was estimated to save an average family of four about $100.
But what about next year? How much of that $1.4 billion in extra funds should the state keep?
The question is complicated by the state’s stodgy tax structure. All income tax funds go to public and higher education, as well as to some programs that help disabled people. Any cut in the income tax — which many lawmakers see as the best way to stimulate economic growth — would come at the expense of schools.
In an opinion piece published by the Deseret News last February, House Speaker Brad Wilson argued that income tax collections keep growing at a much faster rate than sales tax receipts, and that this will ultimately impact the ability to fund critical state needs. Look for this to be an issue again in 2023 as lawmakers push to release restrictions on how funds may be spent. It restricts lawmakers’ ability to prioritize state needs.
Utah Taxpayers Association President Rusty Cannon argued in an August newsletter essay that the state can both cut taxes significantly and increase funding for education. He noted that the Executive Appropriations Committee already has projected a drop in revenue to $9.7 billion, anticipating bad times ahead.
Looking closer, he said, “even after factoring in all of the spending currently planned, there is at least a $1.778 billion cushion — even before the already booked surplus of $1.4 billion is considered.”
Cut the income tax to a flat 4.5%, Cannon said, and the state still would have two-thirds of surplus funds left to increase education spending and build rainy day funds. We would add that the time has come, at last, to eliminate the state’s portion of the tax on groceries, giving families more money immediately.
These are compelling arguments — dampened only by inflation, rising interest rates and fears of a recession.
The tax commission’s snapshot includes its own cautions. Income taxes this year benefitted from a strong stock market early in the year and a strong housing market. Both have since hit the skids, meaning next year’s growth “is poised to moderate.” Sales tax collections already have begun to moderate and may continue to do so. Utah’s consumer confidence, while still 15 points higher than the national average, is trending downward.
All of this is true, and yet there seems to be enough and to spare for doing all of the above, including preparing for hard times.
A quarter of all surpluses are automatically applied to rainy day funds. The state will have plenty with which to weather a moderate storm. If the downturn is worse than that, lawmakers would have to do what they have done in the past, which is to hold special sessions and make difficult cuts.
But current surpluses suggest that, under current circumstances, taxes could be cut while still funding state needs, including education, adequately. This could be done best if the state were to reform its tax system to make better use of all its tax revenues.
Planning for bad times is one thing. Continually collecting more than is needed, however, inhibits economic growth.