SB2001: More things to consider

At the Utah Taxpayers Association meeting on Tuesday, Governor Herbert said everyone in the legislature would rather take a whipping than deal with tax reform, because it’s a heavy lift. I think he’s right about that!

 

So why did we do it? It would have been much easier to wait until the general fund goes into deficit later this year, at which point many more Utahns would agree that something must be done. We would have had more buy-in under that timeline for sure. It took courage and foresight to vote for this bill ahead of the crisis. A leader has to make tough choices based on solid information, not fear or emotion. 

 

I think by now everyone knows that in Utah we have three revenue sources: income taxes, which go directly to education (it’s in the Constitution); fuel taxes, which go directly to transportation; and sales taxes, which go to the general fund, whose role in funding government is much less straight forward but also critically important.  

 

The general fund supplements education and transportation and pays for everything else: services for the aging and the disabled, DCFS, air quality initiatives, corrections, affordable housing programs, Medicaid (including expanded Medicaid for able-bodied adults up to 138% above the poverty line), UHP, etc. (For a complete list of where every dollar goes, visit cobi.utah.gov.)

 

Here are some of the oft repeated criticisms of the bill with counter-arguments I’ve cobbled together in its defense: 

 

1)    “SB2001 was rushed through – on the fly – without the depth of discussion warranted.” 

 

We’ve been talking about modernizing our tax structure since Olene Walker was governor. We did discuss major changes in tax policy throughout general session in 2019, but then announced we would study it through the summer while conducting meetings across the state. Gov. Herbert said he knows of no other issue that has had so much study and input! 

 

2)    “SB2001 is not a tax cut at all – it’s secretly a tax increase!”

 

Not true. After all increases and decreases are figured in (based upon estimated grocery, fuel, and service purchases and the income tax decreases, exemptions, etc.) 85% of Utahns will pay less in taxes this year.  The State collected $482million in income tax surpluses this year! If we had not cut the income tax rate, people would continue to overpay and government would continue to overspend that much more. 

 

There is something about human nature that makes us think we are getting the short end of the stick. We automatically assume we will be among the 15% breaking even or paying slightly more instead of the 85% who will pay less. Some people even imagine that they will be paying a lot more, which simply isn’t true. The people who will be breaking even or paying more are the same ones who came out farthest ahead with the Trump tax cuts in 2017. This may not be their tax cut, but for most people, it is a tax cut. It is the largest tax cut in state history. We always say we want tax cuts and we want a middle-class tax cut – this is it! 

 

3)    “SB2001 balances the budget on the backs of the poor by imposing a higher tax on groceries.”

 

In order to prevent this grocery tax increase from being regressive (disproportionately affecting lower-income people, who spend a higher portion of their money on basics like food), this bill was carefully crafted so that a family of four earning below $75,000 annually will get a break in the form of tax rebates. Even if they receive food assistance or do not file income taxes, they will receive a rebate check of $125 per person x 4 plus $50 for each additional person in the household. It is a very simple process, and partial rebates will be sent out in July this year to offset additional taxes paid before taxes are filed next spring. That $125 check per person will pay for increased grocery taxes on $4,000 worth of groceries, so a family of 4 with $500 in offsetting rebates will be covered for $16,000 worth of groceries! I don’t know about you, but I do not spend $16,000 on groceries in a year. That would be $1,333/month for a family of 4. 

 

Many economists who have analyzed the bill say it is slightly progressive, not regressive. It actually benefits low-and-moderate-income people and families more than the rich, who will not benefit from it at all. 

 

4)    “Education will be harmed.”

 

When Gov. Herbert came into office, Utah spent $2.6billion/year on education. We now spend $4.9billion. We get a lot for that money – according to U.S. News & World Report, Utah ranks 2nd in educational achievement behind only Massachusetts. Money isn’t everything when it comes to education. It’s important, but it isn’t everything. One study showed that if Utah were to put every last revenue dollar it brings in on education, we would still rank only 22 out of the 50 states in terms of spending. On the other hand, we spend a larger proportion of our total funds on education than many other states. Teachers matter most and should be paid more. In fact, one study showed that the two most important factors in receiving a good education are 1) a home that values education, and 2) a good teacher. 

 

Education will not be harmed, because we still have the earmark (education will continue to receive all income tax revenues) and the legislature always supplements education’s additional needs from the general fund. If we were to rely solely on income taxes to fund education, they would be at the mercy of the most volatile tax of all. The income tax rises and falls with the economy and employment rates. Imagine not knowing in January what you will have to spend in July. Income tax receipts dropped 20% with the 2008 recession, for example. A healthy general fund lends stability to education and transportation (one third of transportation is paid for out of the general fund) while funding everything else. 

 

As Senator Lincoln Fillmore said at the meeting, “It is dangerous and irresponsible to tie one of the most important functions of government (education) to the least stable source of revenue. The general fund must be able to pick up the slack.” 

 

Many of the people pushing the referendum, I’ve observed, are closely tied to education. They would like ALL of the surpluses sent to education without giving taxpayers a break for paying too much in income taxes year after year. 

 

5)    Economists and fiscal analysts agree it’s good tax policy…but is it good moral policy? 

 

Senate President Stuart Adams pointed out many of SB2001’s positive aspects in his address at the meeting: 

-       We enacted the nation’s largest tax credit for groceries.

-       We enacted an earned income tax credit for families living in inter-generational poverty.

-       We removed Social Security income tax for retirees. 

-       We re-instated the dependent exemption and moved it up to $2500 per dependent, the highest in the nation. Even single people and couples will be able to count this exemption. 

-       We enacted pre-bates for partial exemptions in Feb/March (retroactive to 2018 returns) and for the food tax in July. 

-       We removed all taxes on feminine hygiene products (formerly known as the “pink tax.” You’d be surprised how many people have sent me emails about this.)

 

Pres. Adams summarized the bill by saying Utah will now be the best place in the nation for families, not just the best place to do business. 

            

When money is taken out of our paychecks in the form of income taxes, the state holds it all year, using it interest-free before refunding it in the spring. Sales taxes are more fair and direct in that regard. Some states have no income taxes at all but rely exclusively on sales taxes and fees. 

 

One last thing that detractors are not taking into consideration with this bill: the track record of Utah’s economists and fiscal analysts, who have earned a high degree of trust and respect, in my opinion. No matter what you think of the politicians involved, Utah is universally regarded as the best managed state in the nation. We are also #1 in upward mobility and a slew of other accolades. The economists and fiscal analysts who helped craft SB2001 are the best in the nation, and they are not new to the state. They aren’t going to put their sterling reputations on the line to pursue a dangerous path. They aren’t going to call something a $160million tax cut that doesn’t materialize into a tax cut. They know that all of the assertions made in this bill will be analyzed and re-analyzed. I am as comfortable trusting them as I am trusting the pilot of a commercial flight or the pharmacist who bottles my prescriptions. 

 

Cheryl

Cheryl Acton