Legislative leaders say they’re eyeing a $341 million income tax cut, but the entire reduction will be phased in over time to correspond with a proposed overhaul of the sales tax.
Legislative sources tell UtahPolicy.com that, when the proposed income tax cut is fully implemented in FY2022, it will cover four key areas and include approximately $80 million of targeted cuts geared toward lower-income Utahns.
Dropping the income tax rate from the current 4.95% to 4.75% – a $266 million total reduction.
An increase in the earned income tax credit (EITC) of $7 million.
A $15 million expansion of the Social Security tax credit
$53 million to cover the changes in federal tax calculations resulting from the elimination of tax exemptions for Utahns with an income somewhere in the neighborhood of $85,000 and less.
The income tax rate drop from 4.95 percent to 4.75 percent will take effect when the bill becomes law – with discussions still going on whether that is this year or January 2020. That rate will not be phased in over three years, as some of the sales tax provisions in the bill will be, sources tell UtahPolicy.com.
GOP leaders say an important point of the sales tax reform is that it will be revenue neutral – for the foreseeable future. Early fiscal notes on HB441, sponsored by Rep. Tim Quinn, R-Heber, showed no new revenue next year, but then big increases as parts of the bill kicked in. A substitute HB441 will have NO fiscal impact for at least three years – it will truly be revenue neutral in regard to sales tax take from citizens overall.
“This is important, for as the whole new system kicks in, you will see more money coming from the general fund into higher education budgets,” said one leader. “And that will mean more income tax money freed up for public schools.” Not only will HB441 and the budget next year hold harmless public education, but it will also allow public school budgets to grow even faster, leaders tell UtahPolicy.com.
So will there be a separate income tax cut this year outside of the sales tax overhaul? That depends entirely on what budget negotiators come up with for the FY2020 budget.
“We’re committed to a tax cut this year,” said House Speaker Brad Wilson, R-Kaysville. “We’re working through the details right now.”
The key part of any cut, according to Wilson, is making sure they’re not cannibalizing education funding. That will depend on what budget negotiators come up with.
Sen. Jerry Stevenson, R-Layton, who is one of the central figures in this year’s budget negotiations, says they’re getting close to figuring out what next year’s budget will look like.
“We’ve spent a lot of time letting air out of balloons,” said Stevenson. “We’ve had a lot of unreasonable expectations for funding based on that $1.3 billion surplus number.”
Stevenson is referring to the astronomical surplus announced prior to the session. That number has since been revised downward following new consensus revenue figures released last month that showed the surplus had shrunk due to smaller than expected revenues.