Every month – with the exception of August and September – we watch for the State Tax Commission’s TC-23. The report provides a snapshot view of the State’s revenue picture. As we have been saying for over a year now, revenue is incredibly strong. The first quarter of 2022 shows a blowout picture for tax revenue.
In addition to an (yet to be released) $800 million or more FY 2021 revenue surplus, the first quarter of 2022 shows an even brighter picture. The TC-23 shows sales tax up 22.1%, corporate tax up 24.4%, and income tax withholding up 18.7% (the income tax final payments number, -87.4%, is due to a timing shift and shouldn’t be counted on for a realistic picture). Now, we don’t think legislators should count on these high growth rates for the remainder of 2022 because if these growth rates were to hold, the 2022 revenue surplus would be in the multiple billions. What is reasonable to assume is that the ongoing revenue picture is healthy enough to lower the income tax rate to 4.5% and help Utah’s families.
Based upon the recently released figures, when updating our 2022 revenue forecast and looking forward to 2023, we think ongoing revenue available will be at least $1.65 billion, with another $1.2 billion in one-time funds.
What’s the best way to allocate this large amount of money? Well, after covering public education growth, Medicaid growth, and other spending priorities, we think lowering the income tax rate to at least 4.5% would go a long way to improving the long-term outlook for the future workforce.
What should policymakers avoid? Two things. First, avoid thinking that all this money is one-time. The long-term outlook for Utah’s economy is strong, and one of the most important ways to ensure it continues on a healthy path is to lower our tax burden. It worked when Utah lowered the income tax rate from 7% to 5%, and it will work again this time. Policymakers were bold back in 2006, and they should be bold in 2022. The time to act is now.
Second, don’t spend all the money or sock it away for a rainy-day fund. The rainy-day funds are already quite large at over $1 billion. And spending all the money will only further fan the flame of inflation, something that federal policymakers are apt to forget.
The time for preparation is over. The time to be bold is now.