Chances of a tax cut this year are fading as lawmakers are getting skittish because of recent instability in the financial markets.
As UtahPolicy.com first reported, House lawmakers are proposing taking several hundred millions of extra income and sales tax revenue and putting it aside in some “rainy day funds”(more like savings accounts) that they can tap if the economy turns sour. House Republicans are proposing putting $100 million in ongoing education funds aside to cover education costs, along with more than $50 million in ongoing General Fund money for Medicaid costs and another $25 million for unexpected costs such as wildfire suppression efforts.
Sources tell UtahPolicy.com that during the closed Thursday House Republican Caucus meeting, several lawmakers expressed worry that the financial uncertainty from the coronavirus could hurt Utah’s booming economy. The Dow Jones dropped sharply last week, tumbling more than 1,190 points on Thursday, which was the largest single-day drop in its history.
If there is an economic downturn, Utah’s unemployment rate, currently at a historic low, could start creeping upward, which will increase Medicaid costs as the unemployed look to the state for health coverage after losing their jobs.
Those two factors are causing lawmakers to question whether a tax cut is the best move at the current time.
“The stock market has people pretty jittery, and the idea of a tax cut seems to have caught the flu,” said one Republican lawmaker who requested anonymity.
Despite the worry behind closed doors, Republican lawmakers are still expressing public confidence about the economy.
“We have a very healthy economy right now,” said House Speaker Brad Wilson on Friday. “For the last decade we’ve been working to put our fiscal house in order. It’s just prudent that we do everything we can to be prepared for whatever might come our direction down the road.”
Lawmakers have plenty of extra money to spend this year, but the overwhelming majority of that extra cash is from income tax in the Education Fund. There’s $518 million of ongoing money in that fund right now and another $323 million of one-time money.
The General Fund, which is made up primarily of sales tax money, only has $92 million of extra money available this year. There is a proposal that could free up another $100 million of general fund money by shifting some higher education expenses out of sales tax money to the Education Fund.
But, don’t think the idea of a tax cut is dead. With more than $800 million of extra cash in the Education Fund, lawmakers are still considering some kind of tax relief this year, but they may be more strategic about it. If the economy does hit some turbulence, lawmakers could wait until a special session later this year or even the 2021 legislature to cut taxes as an economic stimulus.
“The timing of the tax cuts is an interesting question,” says Wilson.
But it’s clear momentum on the Hill is shifting away from tax relief and toward preparing for potential economic trouble.
“We have to do what’s necessary to make sure we have flexibility during a downturn to put money back in the economy and just do tax cuts across the board,” says Wilson.