The Tax Cut That Isn’t!

Over the past year Utah legislators and Governor Herbert have provided multiple excuses for adopting radical and risky tax reform measures in our state.  Each of these excuses have been debunked as incorrect or greatly exaggerated. (See “Debunked Myths of Tax Reform“) The last excuse being advanced is the claim that the Tax Reform Bill will reduce Utah taxes by $160M over the next two fiscal years.  This, like all of the other excuses, is a myth.

The Tax Reform Bill is not a tax cut.  Base on analysis by Utah Legislative Watch, if allowed to stand, the tax reform bill will increase the tax burden on Utahans by $330 million dollars during fiscal years 2020 and 2021.  ULW’s research found that, in order to arrive at the claimed $160M tax saving figure, the Legislature has grossly underestimated the effect of new taxes and grossly overestimated, or misstated, the claimed income tax savings.

The most obvious error in the accounting is that it counts, as a tax cut, adjustments to our state income tax codes that are two years overdue. 

You may remember that the federal government passed sweeping tax reform in 2018.  Among other things, the new federal law eliminated personal exemptions.  Utah lawmakers failed to adjust for the federal changes, effectively raising Utah income taxes by $120M in 2018.  The legislature failed to act again in 2019, costing Utahans at least another $120M in increased income taxes.  The Tax Reform Bill finally makes the adjustments (effective for 2020) that are two years overdue.  Incredibly, however, the Legislature and our Governor are claiming that this long overdue correction is a $132M tax cut. 

Let’s do the math:

                2018 Increase due to Inaction:   $120M

                2019 Increase due to Inaction:   $120M

                2020 Increase if no Action:           $132M

                Action finally taken:                        ($132M)

                Total Effect                                         $240M  – (OVER-TAX SINCE 2018)

The claimed $160M tax cut is nothing more than a shell game.  By not honestly reflecting the effect of legislative inaction since 2018, our lawmakers and Governor have re-branded a $240M income tax increase into a claimed $132M tax cut.  This single adjustment, alone, debunks any claim that the Tax Reform Bill is a tax cut.  The Tax Reform Bill is radical, risky, and unneeded.  Contrary to claims made by the Legislature and our Governor, it is also a massive tax increase. Utah deserves better.

Debunked Myths of Tax Reform

Over the past year, our Legislature and the Governor’s Office have tried to convince Utah Citizen’s that our tax system is in crisis and must be fixed.  Each of the excuses given to try to justify radical and risky tax reform have been debunked by the the State’s own data and experts. Let’s review:

EXCUSE 1:  Utah is facing a “fiscal cliff” because sale tax collections are declining.

FALSE!  Data from the Utah State Tax Commission clearly shows that sales tax collections have been steadily increasing, and are at record levels.

EXCUSE 2: Sales of taxable goods are declining.  Therefore, we must tax services.

FALSE!  While it is true that the mix of goods to services has declined since the 1960’s, the decline largely occurred between the mid 1980’s and 2000.  Since the mid 2000’s, the mix has stabilized and sale of taxable goods in recent years is rising.  Moreover, lawmakers already adjusted for the change in the mix by raising the sales tax rate years ago.

EXCUSE 3: The General Fund is not growing fast enough!

FALSE!  As pointed out in a report from the Office of the Utah State Auditor, taxable sales and sales tax collections (without taxing services) has kept pace with Utah’s economy for the past 50 years.  More importantly, the report pointed out that the perception of slow growth in the General Fund is a result of the deceptive practice of Legislative Earmarking, which diverts money from the General Fund and, therefore, improperly skews the numbers.

EXCUSE 4:  We aren’t collecting enough money to provide for Utah’s growing population.

FALSE!  Dollar for dollar tax collections, since 2010, have grown nearly 70% while Utah’s population has grown roughly 14% in the same period.  We don’t have a tax collection problem, our State government has a spending problem!

EXCUSE 5: We have an allocation problem.

FALSE!  While it is true that Utah’s Constitution limits taxes on income for the support of education, this hasn’t created a crisis.  As noted above, when properly accounted for, we are collecting more than enough taxes to fund government programs.  After all, for fiscal years 2018 through 2019, Utah has run a $1.6 Billion dollar surplus, has an economy that is the envy of the nation, and has a AAA bond rating, all achieved under the current tax system. Utah’s tax system is NOT in crisis.

EXCUSE 6: We had to solve the allocation problem, so we had to pass this Bill in a Special Session.

FALSE! The Bill passed in the Special Session does result in $500M being moved from the Education Fund to the General Fund. However, last five pages of the Bill also appropriates the same $500M TO PAY FOR EDUCATION! So, how does this solve the so called “allocation problem,” and why did we need a 200 page bill to spend the money in the exact same way we would have if no bill had been passed?

EXCUSE 7:  The Tax Reform Bill that was passed is a tax cut!

FALSE!  This is, perhaps, the biggest falsehood of all.  Analysis of the fiscal note of the Bill reveals that certain items have been left out of the computation or have been seriously under or overestimated, which make the Bill look like a tax cut on paper.  The Tax Reform Bill is not a tax cut.  This myth will be further explained in a subsequent article.  Stay Tuned!