Utah lawmakers slashed more than $1 billion in taxes in four years. Now, tax revenues are plummeting faster than anyone expected, potentially threatening funding for the state's already lowest-in-the-nation education spending.
Under Utah’s Constitution, income and corporate tax revenue can only fund public and higher education and some social services for the disabled.
When revenues exceeded expectations, the GOP-controlled Utah Legislature used the extra cash for over $1 billion in tax cuts instead of education or social services.
Last month, legislative leaders set aside another $165 million for more tax reductions in the 2025 session starting later this month.
Cutting taxes means lower tax revenues. However, Utah’s collections appear to be falling more rapidly than lawmakers anticipated.
According to the latest figures from the Utah State Tax Commission, individual income tax revenues over the first five months of the 2024/25 fiscal year were 3.3% less than the same period last year. Corporate collections were down 16%.
In real numbers, individual income tax collections are $71.7 million lower, while corporate taxes are $31.7 million less.
While it’s reasonable to argue that cutting taxes leads to lower tax revenues, this current decline is much steeper than expected when lawmakers set the budget last February.
Individual income taxes were expected to rise 2.9% while corporate taxes would fall by 4.1%. The current numbers show those projections were off by 6.2% and 11.9%, respectively.
If those trends hold, individual and corporate income tax revenue would be $345 million below projections.
With revenues falling faster than expected, you have to wonder if lawmakers cut taxes too aggressively or if another round of tax cuts is wise.
"It will be discussed and determined during the session," a Utah Senate spokesperson said in a text message.
House Minority Whip Jen Dailey-Provost, D-Salt Lake City, says she’s not overly concerned just yet. She remembers a similar situation over the past few years.
“I remember looking at the report about this time last year, and it was much the same. It showed us pretty far behind, but by the time we got to February when we were looking at actual numbers to build our budget, they were actually a lot closer to projections.”
“I would say if the Tax Commission’s current numbers held for the whole year, then yes, we would be in really, really bad shape, but I don’t think that you can reliably say that those numbers are going to hold for the entire fiscal year.”
Dailey-Provost supported the plan to set aside $165 million for tax reductions in the upcoming session because she hopes her colleagues will consider something other than more income tax cuts.
“I want to recognize that past behavior is a good indication of future behavior, and past behavior is to cut income and corporate tax rates. I have voted against that and would continue to vote against that. But, if my colleagues are finally going to step up to the table and have a serious conversation about the sales tax on food, I am an enthusiastic supporter of that conversation.”
That hope may be short-lived. On Monday, a bill from Rep. Kay Christofferson, R-Lehi, to drop Utah’s income tax rate by 0.1%, from 4.55% to 4.45%, was made public. That reduction would consume the entire $165 million lawmakers set aside for tax cuts.
The money for an income tax cut comes from future revenues that would otherwise go toward public or higher education or certain social services.
Utah already spends the least per pupil on public education of any state. Another income tax cut will strain an already tight public education budget.
Moe Hickey, executive director of Voices for Utah Children, says he’s worried lawmakers have already been too aggressive cutting taxes.
“When you consistently cut the rate, at some point you’ve gone too far. You’ve reached a tipping point where you’re now cutting into revenue growth. So even if we continue growing, that starts leveling off. That’s when we see what we’re seeing now.”
While alarming, falling revenues don’t mean lawmakers should panic yet. Lawmakers could tap over $850 million in Utah’s education rainy day fund in an emergency.
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