A panel of Utah lawmakers on Wednesday gave early approval to a bill that would drop Utah’s income tax rate to 4.85% with a price tag of about $160 million a year.

The bill is now on its way to the Senate floor for discussion — but the debate over how to cut taxes this year is ongoing, with lawmakers caught between those who want an even bigger tax cut, those who think any tax cut should be more targeted for low- and moderate-income Utahns, and those who think the taxpayer money would be better spent on programs for the needy.

The Senate Revenue and Taxation Committee voted 6-2, with two Democrats voting against, to favorably recommend SB59 to the full Senate.

The bill sponsored by Sen. Dan McCay, R-Riverton, initially would have only dropped Utah’s income tax rate from 4.95% to 4.9%, but McCay changed the bill to reflect a 4.85% rate after Senate leadership signaled they’d prefer that figure.

How much money would Utahns get back?

For a family of four making Utah’s median income of about $72,000 a year, the cut would mean about $98 more a year, McCay said.

“That’s not a big number, but it does make a difference to those who earn that income, and that’s one more expense, a few more meals. ... For that reason we’re hopeful this is a great return to them.”

McCay noted his bill is only one piece of what’s likely to be a bigger discussion about tax policy as it moves through the House and Senate.

While the Senate focuses on an income tax cut, the House is “working on some additional components,” McCay said, including perhaps some changes to the state’s Social Security taxation and possibly an earned income tax credit more targeted toward low- and moderate-income Utahns.

Plus, McCay said lawmakers haven’t ruled out Gov. Spencer Cox’s proposal for a grocery tax credit — though Senate leaders earlier Wednesday said lawmakers aren’t very “energized” by the proposal.

Meanwhile, Democrats and poverty advocates have been pushing for a full repeal of the state’s sales tax on food, but that proposal hasn’t gained traction amid the Republican-controlled Legislature.

Earlier this month, Senate President Stuart Adams, R-Layton, predicted in an interview with the Deseret News that legislators would likely land on an income tax rate cut to 4.85%, but added it’s possible lawmakers could allocate more money to fund a larger tax cut package.

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Utah lawmakers have already set aside $160 million for a tax cut this year, with a budget that’s projected to have another $219 million in ongoing funds and over $1 billion in one-time funds available to spend this year. The proposed income tax cut would use up all of that $160 million.

Legislative leaders say they have identified another $40 million that could bring the $160 million already set aside for a tax cut to $200 million, Senate leaders told reporters earlier Wednesday. Senate Majority Leader Evan Vickers, R-Cedar City, said to expect to see proposals for that come from the House.

“They’re considering some other options, with some other possibilities (of) adding to that,” Vickers said of the House.

Asked about the governor’s proposed grocery tax credit and the Democrats’ favored proposal to repeal the food tax, Vickers said neither the House nor the Senate “seem to be too energized” on either of those ideas.

Adams, however, said the governor is still engaged in negotiations, noting an earned income tax proposal “is something he likes also, so we’re having those discussions.”

Cut taxes or spend on the needy?

People from both sides of the debate voiced concerns at Wednesday’s hearing.

“Families right now are facing stiff inflation,” said Rusty Cannon, president of the Utah Taxpayers Association. He called for a bigger income tax cut, noting updated revenue projections in February could give lawmakers even more ongoing funds to spend.

“We think legislative leadership has been conservative in the way they’re approaching this, and this is early in the game,” Cannon said. “We think there should be a lot of room to make this even more significant for taxpayers with a deeper income tax cut than even what’s proposed now.”

Heather Andrews, state director of Americans for Prosperity-Utah, said lawmakers should drop the income tax rate even more, perhaps to 4.6%. She argued Utahns are struggling to keep up with the rising costs for housing, groceries and gas amid record inflation.

“They’re feeling the pinch in their pocketbooks,” she said.

But Lisa Stamps, who said she’s a parent of a disabled child, said she’s “disappointed” in legislators focusing on a tax cut when “we have thousands of people waiting for social services.”

“It’s repugnant to hear about cutting taxes when they are so desperately needed here for our people,” she said.

Matthew Weinstein, fiscal policy director for Voices for Utah Children, urged lawmakers to be cautious when cutting taxes.

“We understand tax cuts are popular,” he said, but he added “there are unmet needs. There are over $5 billion that we’ve been able to document in unmet needs in very important areas of state responsibility.”

Weinstein also said “not all tax cuts are created equal.” Utah’s overall tax structure is “regressive,” he said, “in the sense that the highest income Utahns pay a lower tax rate when you add up everything than lower and middle income Utahns.”

He said Voices for Utah Children are “big fans” of an earned income tax credit proposal, of which 91% would be targeted toward Utah’s low- and middle-income taxpayers. He urged lawmakers to consider including an earned-income tax cut in the final package.

Utah Democrats would rather see a targeted tax cut for low-income Utahns in the form of repealing the state’s sales tax on food or using that money for other programs.

Senate Minority Whip Luz Escamilla, D-Salt Lake City, told reporters earlier Wednesday that an income tax cut wouldn’t provide “significant” relief for Utahns with modest incomes.

Instead, Escamilla said she’d rather see the state increase funding programs like education and social services “to make our economy strong.”

Is cutting tax cuts wise before a possible economic ‘bubble’?

Asked by a reporter earlier Wednesday whether lawmakers were being stingy with taxpayer money for not considering a larger tax cut, Senate leaders said it’s possible they’d support using more than $160 million for a tax cut, but they want to tread carefully.

Senate Majority Whip Ann Millner, R-Ogden, said Senate leaders want to be cautious given the national conditions and the possibility of an economic “bubble.” She said projections show a “revenue spike, and that revenue spike is caused by the federal money” in one-time COVID-19 stimulus funds.

Senate Majority Whip Ann Millner, R-Ogden, speaks on the Senate floor at the Capitol in Salt Lake City on Day 3 of the Utah legislative session, Thursday, Jan. 20, 2022. | Spenser Heaps, Deseret News

“The question is going to be will this revenue hold in an ongoing basis two years, three years down the road. Or do we have a bubble?” Millner said. “And what our economists are telling us is we most likely have a bubble.”

That means “we need to spend some of the ongoing one time and watch and see what happens next year,” Millner said. “And then I’m sure, depending on how the funding stabilizes, etc., that conversation could happen again next year.”

Millner said she and other lawmakers lived through the Great Recession. In 2007, she said lawmakers spent and cut taxes — but then had to cut budgets three times to respond to the economic spiral.

“I don’t want to do that again,” Millner said. “I think we have to learn our lessons from the last bubble and be very careful here.”

Executive Appropriations Vice Chairman Sen. Don Ipson, R-St. George, agreed.

“That was traumatic, and it was pretty brutal,” he said, noting the state had to cut the budget by over $1.2 billion. “We need to be cautious that we don’t over-cut (taxes) and we live within our means.”