Utah lawmakers are positioned to approve a nearly $200 million tax cut this year, adding to the $160 million across-the-board income tax rate cut that’s already been approved by the Utah Senate.
The income tax rate cut bill, SB59, now includes two more pieces that House Republicans have pushed as part of a tax relief package, including something Utah has never had before: a nonrefundable earned income tax credit, which would be targeted for low- and moderate-income working Utahns.
The House Revenue and Taxation Committee on Friday unanimously voted to endorse the new version of SB59 after it was changed to include about $25 million more in ongoing funding for a nonrefundable state earned income tax credit and about $15 million more in ongoing money to expand eligibility for the state’s Social Security tax credit.
The bill now goes to the House floor for consideration.
SB59’s sponsor, Sen. Dan McCay, R-Riverton, welcomed the changes proposed by the committee’s chairman, Rep. Casey Snider, R-Paradise. The new version of the bill absorbs two bills sponsored by House members to include tax cuts more targeted to Utahns with lower incomes or fixed salaries, in addition to an income tax rate cut that would disproportionately benefit Utahns earning higher salaries.
“One of the things we have to be constantly checking ourselves against is making sure that we’re targeted and focused on appropriate tax policy that balances all of the interests, because everyone wants a tax cut,” McCay said. “If we are smart and continue to focus on targeted efforts like this, I think Utah can manage ourselves fiscally and at the same time balance the fiscal needs of the state, and I think the state has done this.”
By itself, SB59’s original version would have dropped Utah’s income tax rate from 4.95% to 4.85%. Impact to Utahns would proportionately depend on income levels, but for a family of four making $72,000 a year, the cut would mean about $98 more a year.
In the tax cut debate this year, lawmakers have been caught among 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.
Responding to those advocating for a tax cut that would better help lower income Utahns, Rep. Mike Winder, R-West Valley City, spearheaded the effort to create a nonrefundable state earned income tax credit with HB307. Only working Utahns would qualify for the earned income tax credit.
The nonrefundable earned income tax credit would increase tax relief for low- and moderate-income working Utahns by allowing them to qualify for a state match 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.
A nonrefundable tax credit means taxpayers only receive back what they’ve paid in taxes, whereas a refundable tax credit means taxpayers are eligible to receive the full amount of the tax credit regardless of their tax liability.
The other proposal absorbed in SB59 was HB53, a bill sponsored by Rep. Walt Brooks, R-St. George, to expand the state’s Social Security tax credit. It would result in an average annual tax savings of approximately $210 for an estimated 71,257 Utahns in tax year 2022, according to the bill’s fiscal note.
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 took shape in closed-door caucus meetings as Republicans 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 decidedly more than Democrats’ and poverty advocates’ preference to repeal the state’s portion of the sales tax on food.
Though legislators have not moved forward on Cox’s refundable grocery tax credit proposal, the governor is supportive of their approach to include a nonrefundable earned income tax credit as a strategy to target low- and middle-income Utahns, Sophia DiCaro, executive director of the Governor’s Office of Planning and Budget, told the House committee on Friday.
“Any tax cut is a good thing,” DiCaro said. “But we can do better for families who need it most, and this new (version of the bill) helps us get closer to that goal.”
DiCaro noted Cox has “long been a strong advocate for a state earned income tax credit,” saying the policy has “proven to provide focused tax relief to low- and moderate-income working families.”
“We never thought that an (earned income tax credit) would be possible this year,” DiCaro said, “but with strong political will in the legislative body, Gov. Cox is an enthusiastic supporter of a state (earned income tax credit), which is a step in the right direction to benefit populations we sought to help, is a possibility.”
Noting that an earned income tax credit is estimated to provide an average tax break of about $200 a year to about 80,000 Utahns, DiCaro said it would provide a “meaningful tax cut for working Utah families who need it most.”
“And that’s where there is strong alignment for this,” she said.