Utah Capitol 20

UtahPolicy.com is told that lawmakers are squaring off over whether to cut taxes this year following the failure of the tax reform package. House members are pushing for a cut, but Senate leaders are balking because they want to address the structural imbalance in the state’s budget. Lawmakers had $160 million teed up for a tax cut, but there is a worry that they may need that money next year to avoid financial problems.

The $160 million cut was part of the tax reform package that lawmakers repealed in the first days of this year’s session following the success of a citizen’s referendum effort to put the issue on the November ballot.

One idea being discussed behind closed doors is to give some kind of a tax rebate this year, which can be shifted to a permanent tax cut next year and beyond once the state’s structural budget imbalance is addressed.  

UtahPolicy.com is told lawmakers have broken into three camps when it comes to a possible tax cut in the 2020 legislature. Some lawmakers would like to see a tax cut of some sort, which could take the form of fixing the state's dependent tax exemption to offset changes made when Congress passed tax reform at the end of 2017 or cutting taxes on social security.

But, other lawmakers say they would rather wait for any tax cut until they fix the structural imbalance in the state’s budget. That won’t happen until 2021 at the earliest after the failure of last year’s tax reform package.

Some legislators are suggesting instead of a permanent tax cut, they pass a tax rebate that can be made permanent once they fix the state’s tax structure.

Legislative sources tell UtahPolicy.com that one possibility under discussion is making the child tax credit a one-time rebate rather than a permanent cut. 

Right now, Rep. Tim Quinn, R-Heber, is proposing HB260, which will increase the Utah income tax exemption by approximately $50 million to offset changes made by Congress in 2017 that resulted in a tax hike on some Utahns. That would result in an average cut of approximately $230 for Utah taxpayers. Lawmakers could take Quinn’s idea and make it a one-time rebate rather than a permanent cut, then implement a more permanent solution once they fix the structural imbalance in the budget.

The problem with this idea, however, is multifaceted:

Almost assuredly, because of the imbalance in revenues between the sales tax (General Fund) and income tax (Education Fund), any rebate or tax cut must come from income taxes.

Right now, lawmakers estimate they have $641 million of new money available in the Education Fund. $251 million is one-time money, while $390 million is ongoing. Legislators already took $50 million of the ongoing cash to fund student growth for next year in the base budget.

When the new revenue estimates are available this week, lawmakers anticipate there could be more education money from income taxes, which could increase pressure to enact some sort of tax relief.

Rebating income tax is messy and inherently unfair -- wealthier Utahns pay more income tax -- and so they would get the lion’s share of tax relief. Low-income Utahns may pay little income tax or none at all -- so they would get no tax cut unless you set up a special income tax system just for them to get a few bucks. Otherwise, how do you give all Utahns, i.e. all voters, a tax cut this election year?

All 75 House members are up in November, half of the 29-member Senate.

Rebates are cumbersome, and it could turn out that middle-income Utahns see a check in the mail of just $15 or $25. Many Utahns would laugh at such a small amount -- another example of state government/GOP bosses doing something they may feel good about, but the average Utahn doesn’t (does the tax reform repeal come to mind?)

Since any tax cut must come from the Education Fund, how many pro-advocate public school/teacher groups would argue that small, individual rebates are basically worthless, and it would have better to just give the money to schools, and buy some classroom supplies or up-to-date textbooks.

Legislative sources stress the rebate idea is just one of many under consideration right now. Once the new revenue estimates are available this week, discussions surrounding tax relief should intensify.