Utah Capitol 39

Republican budget leaders tell UtahPolicy.com they are close to setting the 2020-2021 fiscal year budget of around $20 billion.

But as that budget is being written into half a dozen individual bills to be passed next week -- the final major work of the current Legislature -- yet to be decided is whether to give a tax cut to Utahns this year and, if so, where it should come.

UtahPolicy.com is told Republicans in the House and Senate will not consider raising the gasoline tax, and maybe cutting some other tax, as GOP Gov. Gary Herbert discussed with reporters Thursday afternoon.

“That gas tax won’t be done,” said one Republican Friday.

Even if the budget is basically set by leaders on the Executive Appropriations Committee, the money will be put aside -- likely $80 million -- for tax cut possibilities next week.

The options are:

-- No tax cut this year, saving the money for next year’s tax reform (which failed this year) and a tax cut then.

-- Give a slight income tax rate reduction, from 4.95 percent currently to 4.89 percent. And give that $80 million cut for just one year, with tax reform reshaping the state’s overall tax structure in 2021.

-- Increase the individual dependent exemption -- from around $500 to around $3,000 -- on individual’s income tax payments.

-- Reduce the state income tax on most Social Security payments -- rich senior citizens wouldn’t get all of the tax break low-to-middle income folks would.

-- Give an income tax credit for retired military personnel.

There isn’t enough money to do all of the above in their complete form.

And lawmakers really don’t want to spread the $80 million (or whatever the final tax cut equals) over all four.

So likely one or two would be picked.

After all, the idea is to give a large enough tax cut so citizens can actually see it in their income tax returns.

A Y2 Analytics poll obtained by UtahPolicy.com shows that three-fourths of all Utahns want a tax cut now, 80 percent of Republicans want a tax cut now, and 91 percent of those who are “strong conservatives” want a tax cut now.

Lawmakers have a $921 million revenue surplus this session, with by far most of it coming in the education-dedicated individual and corporate income tax. So that is where the tax cut will come.

A straight income tax rate reduction can be done for just one year, then changed in tax reform.

But if one of the other three options -- dependent exemption, Social Security, and military retirement -- are given now, it would be very difficult politically to take away or reduce any of those tax reliefs in the 2021 Legislature or later if the final tax reform calls for it.

Thus, it seems the cleanest, simplest tax cut -- if one is given -- is to just lower the rate a bit for a year, and then start with a clean tax reform slate in the 2021 Legislature.

That action would also give a tax break to corporations -- which are partly responsible for the large income tax surpluses the state is seeing. The other three would be tax breaks for only individuals, not businesses.

Aside from the debate over a tax cut, don’t expect many other flashpoints in this year’s budget. 

“It’s going to be a really vanilla, boring year,” said House Speaker Brad Wilson, R-Kaysville.

Wilson says lawmakers are worried about the economic impact from the coronavirus, driven by the uncertainty in the markets. As a result, he says lawmakers are in the mood to put money away as a hedge against an economic downturn. 

As previously reported by UtahPolicy.com, legislators are establishing a number of “working rainy day funds” in the General and Education fund where they can stash money that they can spend on one-time expenses or hey can access easily when needed. Those funds include $25 million for those one-time expenses, another $50 million or so to cover Medicaid costs and a $100 million fund for education.