After cutting taxes by more than $1.3 billion over the last four years, Utah lawmakers are teeing up yet another round of tax cuts next year.
On Monday, legislative leaders set aside more than $230 million for tax reduction next year. Of that, $165 million is ongoing revenue and $66 million comes from one-time money.
Last week, Gov. Spencer Cox proposed eliminating taxes on social security benefits as part of his $30.6 billion budget proposal for the next fiscal year.
Utah's unique budgeting structure splits revenues into two pots. Income taxes can only fund public and higher education and some social services, while most other revenue sources go for everything else in the budget. Any income tax cut must be paid for by future revenues that could go toward education.
Legislative leaders are being intentionally vague about what kind of tax cuts they're targeting next year. When asked if the $230 million comes from income taxes or other revenue sources, a legislative spokesperson said that would be decided during the upcoming session. The Legislative Fiscal Analyst Office did not respond to questions from Utah Political Watch.
By staying mum on their tax cut plans, legislative leaders have created a sort of Schrödinger's tax cut that exists and does not exist at the same time.
It's certainly possible that both sales and income tax cuts are on the table in the upcoming session, but the available data suggests another income tax reduction is the most likely outcome.
New revenue estimates approved on Monday show an extra $489 million in ongoing revenue to spend next year, with most of that ($343 million) coming from income taxes. The non-income tax surplus, $146 million, is not enough to cover the $165 million lawmakers put aside.
Last year's tax cut which dropped the state's income tax rate by 0.2%, from 4.85% to 4.65%, cost $160 million. If the $165 million in ongoing revenue set aside comes from income taxes, that could pay for yet another 0.2% rate reduction. It could also pay for Cox's proposed elimination of Social Security taxes.
Another across the board income tax cut similar to what the Legislature approved in 2024 would mostly benefit the state's wealthiest residents. An analysis of Utah's 2024 tax cuts from the Institute on Taxation and Economic Policy found that more than 60% of the money from the cut went to taxpayers at with the top 20% of incomes.
One reason lawmakers could be staying mum about their plans is a troubling revenue forecast for next year. When they set the budget for the current fiscal year, revenues from individual income taxes were expected to increase by a modest 2.9%. Instead, those revenues have dropped 1.6% over the first four months of the current fiscal year, which is between $146 million and $567 million below projections. Corporate income tax collections were between $80 million and $134.5 million below projections.
The budgeting situation would have been much easier had Amendment A not been voided from the ballot. That proposal would have removed the restrictions on how income tax revenues can be spent, allowing lawmakers to raid those funds to pay for other parts of the budget.
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