As promised, Utah’s Republican legislative leaders are zeroing in on tax cuts again this year.

House and Senate Republicans on Thursday announced their tax relief proposal, which would total about $400 million in tax relief for Utahns.

More than half of the package, $208 million, would be to drop Utah’s income tax rate from 4.85% to 4.65%.

“We firmly believe money is best used when left in the pockets of our citizens and we’ve clearly demonstrated that the past few years,” House Speaker Brad Wilson, R-Kaysville, said in a prepared statement. “The best way we can ensure Utahns can continue calling Utah home is by passing family and business-friendly policies, including reducing taxes. I am thrilled that we once again are considering historic tax relief and know Utahns will benefit for years to come.”

Over the past two years, the Utah Legislature has slashed taxes by nearly $300 million. Headed into the Utah Legislature’s 2023 general session that started Jan. 17, Wilson said Utah was “certain” to see “historic tax relief” again this year, and Senate President Stuart Adams promised 2023 would be yet another “year of the tax cut.”

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“2023 will be the year of the tax cut again, again, again,” Adams, R-Layton, said. “For the third year in a row, we will return money to the hard-working Utahns who earned it. We will continue to promote long-term investments that help families, individuals and businesses succeed.”

At the same time, Adams said the Utah Legislature will “also fund education at record levels and address pressing issues facing our state, including Utah’s water crisis.”

“The foresight of years past has enabled our economy to be the envy of the nation, and we are committed to having the same foresight that has and will continue to produce a strong and stable economy,” Adams said.

In December, lawmakers positioned themselves for an at least $400 million tax cut package when the Executive Appropriations Committee set aside that amount specifically for tax cuts, plus $145 million to cover the freeze on the basic school levy. 

The question of the session, however, has been what form the tax cut would take.

Tax cut details

Thursday, after House and Senate GOP caucus meetings, legislative leaders unveiled the proposed package in HB54, sponsored by Rep. Steve Eliason, R-Sandy, and Sen. Dan McCay, R-Riverton. The bill would:

  • Reduce all Utahns’ income tax rate from 4.85% to 4.65%.
  • Expand social security tax credit eligibility to individuals earning up to $75,000 per year.
  • Provide a tax benefit for pregnant women by allowing a double dependent exemption for children in the year of their birth.
  • Increase the earned income tax credit from 15% to 20% of the federal tax credit.

If Utah’s income tax rate drops to 4.65%, an average family of four making $80,000 would see a $208 reduction in tax liability.

Critics of an income tax rate reduction have argued it would largely benefit higher earners, but Eliason said the package as a whole, while providing an income tax rate cut, would also target lower- and middle-income earners through expanding the earned income and social security tax credit.

“We attempted to strike a balance,” Eliason said.

Through the tax package as a whole, low-income households would see a 22% tax cut, middle-income households would see a 6% tax cut, and high-income households would see a 4% tax cut, according to legislative fiscal analysts.

The proposed $400 million package is much smaller — at least in one-time money — than Gov. Spencer Cox’s total $1 billion tax relief proposal that included $300 million in new, ongoing tax cuts, $574 million in one-time tax relief, and maintaining the expiration of the basic property tax levy freeze that’s scheduled to expire this year.

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In terms of ongoing tax relief, however, lawmakers’ package would cut deeper than the governor’s. Cox proposed only dropping the state’s income tax rate to 4.75%, which would total $190 million.

The legislative package doesn’t go as far as what the tax watchdog Utah Taxpayers Association wanted this year, a rate cut down to 4.5%. Adams and Wilson have said they’re eager to give Utahns significant tax relief, they want to take a “measured” approach that won’t cut too deep and threaten the state’s strong budgetary standing.

However, pointing to surrounding states’ income tax rates (Arizona’s 2.5% rate, Colorado’s 4.4%, as well as Nevada’s and Wyoming’s total lack of an individual income tax), Adams told reporters this week the goal is to continue to “chip away” at Utah’s income tax rate.

“Income tax is a drag on development,” Adams said Wednesday. “It’s a goal. I’m not sure it will happen in Utah, but many states are doing it. ... We are looking at it, again, chipping away at it a little bit. I’m not sure what the future brings, but it is, I think, something we ought to consider.”

Nationally, states are increasingly doing away with income tax rates, Adams said, so there’s continued “pressure” for Utah to do the same.

“There is pressure to go lower. If we don’t do it this year, there will be pressure next year,” Adams said. “And I think income tax will have pressure for the foreseeable future.”

What about rebates?

Cox proposed giving $400 million back to taxpayers in the form of a one-time rebate, which would equate to $100 for individuals and households making up to about $39,000 per year and as much as $1,345 for those making more than $178,000 per year.

The package announced Thursday does not include any one-time rebates, but Eliason told the Deseret News that’s not off the table.

“A potential one-time rebate is still up for discussion,” Eliason said, adding revised state revenue estimates set to be released on Tuesday will “inform that decision.” He said there are also a variety of other tax cut proposals that could get funded as lawmakers spend the coming weeks hashing out the budget.

In response to a request for comment, Cox’s spokeswoman said in a text message lawmakers’ tax package “includes many of our priorities, but we’re still waiting on revenue projections.”

All along, legislators have been favoring ongoing tax cuts over one-time rebates for lasting benefits for Utahns, Eliason said, but if they do decide on any one-time rebates, they’d need to be large enough to ensure Utahns would “appreciate” the returned tax dollars rather than prefer them to be spent on other programs.

“Frankly, we’ve heard the feedback (that) if you’re just going to send me a small check, just do something good with it instead,” Eliason said. “That doesn’t mean we won’t entertain doing a one-time rebate, but there are a lot of very valid (funding) requests from citizens and bills ... that are still under consideration.”

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Constitutional earmark, sales tax on food

What’s also still being negotiated is whether the Legislature will ask voters to remove the decades-old constitutional earmark that reserves income tax for public education to fix what they’ve called a “structural imbalance” between sales tax and income tax revenue in the budget. It’s something Wilson proposed during last year’s session amid the debate over whether to end the sales tax on food.

That proposal was put on hold last year, but Senate Majority Whip Ann Millner, R-Ogden, told reporters Thursday a bill will likely surface before the end of the 2023 general session to propose a constitutional amendment to remove that earmark.

“In order to remove the sales tax on food ... it would have to be contingent (on removing the earmark), we believe, to be financially responsible,” Millner said.

Millner said she’s continuing conversations with education stakeholders, who have adamantly opposed removing the constitutional earmark for education funding. She said “education has always been a priority in the state, and we’ve put significant money in now, and we are trying to continue to build that, and we will into the future.”

While many focus on the constitutional earmark, Millner said “what’s really important is the budgetary framework, that we have a funding framework for education and that we’re consistent with that over time ... and we’re trying to do that.”

Millner also noted Utah is currently “the only state in the nation that has an earmark on income tax for education.”

Ultimately, she said, Utahns will need to decide.

“It may be that the people of Utah have to decide what their priorities are,” she said.

The next year lawmakers could put a constitutional amendment question on the ballot would be 2024, so they could potentially have two sessions to pass such legislation, though Millner said the goal is to work through the debate during the 2023 session.

Senate Minority Leader Luz Escamilla, D-Salt Lake City, said Senate Democrats also want to “find the balance,” and they’ve long advocated for repealing the state’s portion of sales tax on food.

“It’s been our priority for many years,” Escamilla said, “and if we can accomplish two things at the same time, I think it will be a very successful year.”

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