After nearly a year of debate, Utah lawmakers have passed a sweeping tax reform bill that cuts taxes by $160.5 million.
The bill passed 20-7 in the Senate and 43-27 in the House Thursday night. It now awaits the Governor’s signature.
The bill cuts the income tax rate from 4.95% to 4.66% and imposes new sales taxes on food, gas and some services like ride sharing. That adds up to a $160 million overall tax cut, with further one-time cuts.
“We are collecting too much money from our taxpayers,” said Sen. Lincoln Fillmore (R-South Jordan), who voted for the bill. “This is the third year in a row when Utah’s government has run nine figure surpluses. It is long past time that we returned some of that money to the people who overpaid those bills.”
Utah was just shy of that nine figure surplus in the last fiscal year, but did have it during the previous two fiscal years.
While Republican leaders say the numbers highlight a strong, vibrant economy, they also say there is a “structural” problem with the state budget: New income tax revenue is projected to be more than 10 times higher than that of the sales tax, which has slowed in recent years as Utah shifts to a more service-based economy.
“The real final solution has got to be finding a sales tax base that will grow with population,” said Sen. Lyle Hillyard (R-Logan), who sponsored the bill. “And it’s not that we have a funding problem as much as how it’s tied up and spent.”
Under the bill, Utahns can claim an annual dependent exemption of $2,500 per child, and joint filers without children can claim one exemption. Lawmakers added back an earned income tax credit, which would allow Utahns to claim a state tax credit equal to 10% of the amount of their federal earned income tax credit.
“I’ve heard that it’s an unpopular bill,” said Rep. Jeff Stenquist (R-Draper). “I think that it’s a complex bill … But I think that when people start seeing more money in their paychecks next year, when they start seeing larger tax refunds, dependent tax credits, earned income tax credits helping the poor, then it will become a very popular thing.”
Critics of the bill are concerned that applying the full sales tax to groceries will hurt low-income Utahns, and that it doesn’t include a strategy to replace education funding that would be lost by cutting the income tax.
“It’s really, I believe, a regressive tax and is not good public policy,” said Sen. Luz Escamilla (D-Salt Lake City). “I know that for some individuals a dollar, two dollars, or four dollars means nothing. There’s a lot of working families in our communities, that that is the difference between a gallon of milk or diapers for their babies.”
The bill does include a grocery tax credit for low-income residents to offset the higher cost of food, and 2019 filers would get some of that money starting in January. But critics say getting extra cash once a year is not as helpful to people living paycheck to paycheck as having extra money in their pocket each week.
Educators are negotiating a new funding formula for education, but it’s not included in this tax overhaul.
“If we say that education is our highest value, why didn’t we finish that?” said Rep. Joel Briscoe (D-Salt Lake City).
The bill now heads to Governor Gary Herbert’s desk.