The next pieces of the Utah Legislature’s 2022 tax cut package are taking shape.
While the Utah Senate has approved a $160 million, across-the-board income tax rate cut, lawmakers in the House are gearing up with their own proposals to add about $40 million to this year’s tax cut pot, which would bring the total to about $200 million.
One of the proposals, if approved, would create something Utah has never had before: an earned income tax credit, which would be targeted for low- and moderate-income working Utahns. The other would expand eligibility for Utah’s Social Security tax credit.
Both bills are being sponsored by House members. Rep. Mike Winder, R-West Valley City, is spearheading the effort to create a nonrefundable state earned income tax credit with HB307, which was publicly filed Wednesday. Rep. Walt Brooks, R-St. George, is sponsoring HB53 to expand the state’s Social Security tax credit.
Legislative leaders from both the House and Senate have said the earned income tax credit and Social Security bills are the tax cut proposals that GOP caucus members most prefer.
Both bills have taken shape in those closed-door caucus meetings as Republican lawmakers have favored them as add-ons to an income tax rate cut — more so than Gov. Spencer Cox’s recommendation to give Utahns a tax cut in the form of a $160 million grocery tax credit, and definitely more than Democrats’ and poverty advocates’ preference to repeal the state’s portion of the sales tax on food.
House Speaker Brad Wilson, R-Kaysville, and Senate President Stuart Adams, R-Layton, have repeatedly noted a repeal on the state food tax or a grocery tax credit have failed to gain traction among the Republican-controlled Utah Legislature.
But they have also repeatedly alluded to Winder and Brooks’ proposals as what will likely surface in the House when lawmakers consider Sen. Dan McCay’s bill to drop Utah’s income tax rate from 4.95% to 4.85%. They say both proposals would target needy Utahns, both those on fixed incomes and those making low or middle incomes.
Both Winder and Brooks said they expect their bills to be rolled into McCay’s income rate tax cut bill, SB59, likely when it’s considered in the House Revenue and Taxation Committee. As of Wednesday evening, the bill hadn’t yet been placed on an agenda, but it’s expected to be in coming days or weeks.
What would an earned income tax credit do?
Winder is proposing what would be Utah’s first nonrefundable earned income tax credit because he said it would be the “best vehicle” to give targeted tax relief to Utah’s low- and moderate-income Utahns — those who make less than $75,000 a year — while also incentivizing work.
“The EITC has proven to be very effective policy because it’s a hand up — not a hand out,” Winder said in an interview with the Deseret News on Wednesday.
HB307, which Winder said would cost the state about $25 million in ongoing funding, would allow working low- and moderate-income Utahns to qualify for a nonrefundable earned income tax credit equal to 15% of the amount of the federal earned income tax credit.
The amount they would receive back would depend on family size and income levels. But for a family of four with a yearly income of $31,000, the state earned income tax credit match would give them an extra $266 in their tax return, Winder said.
Winder said he has three goals. First, to help “children experiencing hunger in this time of rampant inflation” by providing a bit more budget wiggle room for Utahns. Second, to “encourage potential workers to get back to work.” And third, to “give a leg up to working families seeking the American dream in Utah.”
“This year it is more important than ever that Utah finally adopt an EITC. Working families have been especially hard hit by both COVID-19 and rampant inflation. They desperately need our help,” Winder wrote in a recent op-ed for the Deseret News.
“Meanwhile, Utah employers are facing a record worker shortage. Our labor force participation rate — the percent of working age adults who are in the workforce — still has not recovered to pre-pandemic levels. Literally tens of thousands of Utahns are sitting on the sidelines while critical jobs go unfilled.”
Winder said an earned income tax credit, which has been implemented in 30 other red and blue states, would incentivize potential workers back to the workforce. He cited recent research from the American Enterprise Institute that there is “robust evidence that EITC expansions increase the extensive margin of labor supply.”
While Winder applauded an income tax rate cut in his op-ed, he also “implored” his fellow lawmakers to consider an earned income tax credit.
“We cannot have an income tax cut without doing something additional that would be significant for Utah’s low- and moderate-income working families,” he wrote.
Winder told the Deseret News he’s “cautiously optimistic that this will be the year that we see this happen.”
Who would the expanded Social Security tax credit help?
Last year, as part of a $100 million tax package targeted at Utah veterans, seniors and families, Utah lawmakers used about $18.3 million in ongoing money to eliminate income tax on some Social Security income, targeting Utah senior citizens living on fixed incomes. This year, Brooks wants to go a step further to expand eligibility for the social security tax credit.
If HB53 is approved as currently drafted, it would allow a married Utahn filing separately to qualify for it with an income of up to $31,000 a year, up from the current $25,000. For a single filer, that threshold would expand from $30,000 to $37,000. And for a head of household or joint filer, that qualifying threshold would increase from $50,000 to $62,000.
“So more and more people won’t have to pay (the tax) on Social Security,” Brooks said.
The Social Security tax changes would cost the state about $15.4 million in ongoing money. It could result in an average annual tax savings of approximately $210 for an estimated 71,257 individuals in tax year 2022, according to the bill’s fiscal note.
Brooks said he generally doesn’t agree with Social Security as a tax policy.
“It is double taxation,” he said, adding he’d eventually like to see the Social Security tax threshold move up “until we can, in my opinion, get rid of it.”
Brooks lives in St. George, a popular retirement community for Utahns. “It’s like heaven’s waiting room,” he said, noting that many of his constituents are retired and living on fixed incomes.
“I see it firsthand,” he said. “Why in the world are we taxing these people twice? They pay taxes on their income once. ... I think we need to start there first, because it is double taxation and move it away. I don’t think it’s a good tax policy, period.”