The Office of the Legislative Fiscal Analyst holds the important responsibility of estimating the cost or savings of all proposed legislation. Every bill publicly numbered and filed in Utah includes a fiscal note, which shows the analysis conducted by the Legislative Fiscal Analyst. These fiscal notes help legislators establish a balanced budget by forecasting revenues and expenses throughout the process of passing legislation. Fiscal notes play an integral role in ensuring fiscally responsible government in Utah.
Uniquely, Utah is one of the few states to issue fiscal notes on tax cuts, showing revenue the state may forego by passing certain legislation. This method implies that the state is entitled to all current tax revenues and that giving taxpayers a break is an expensive burden to the state. In these static fiscal notes, only one side of the equation is seen. The other component that is not seen by the legislature is the impressive economic growth that occurs following tax cuts and tax reforms. These benefits to taxpayers and the state are missing from traditional fiscal notes.
A new kind of fiscal impact analysis, known as dynamic scoring, is beginning to be used at the federal level as a more accurate way of estimating the direct as well as indirect effects of policy. Dynamic scoring takes into account broader changes in the economy that may result from policy shifts and shows the fiscal impact of various behavioral responses. For example, a tax cut will directly reduce tax revenue to the state, but if it encourages companies to invest more or people to spend larger amounts of money, those private sector behavioral responses will defray the direct cost to the state budget.
Your Taxpayers Association has long highlighted the economic benefits that come from low and equitable taxes that in turn assist the state’s financial condition.
During the 2013 interim the legislature conducted a pilot project exploring the use of dynamic fiscal notes. As an example, the legislature chose to analyze the expansion of Utah’s existing manufacturer’s sales and use tax exemption to all business inputs – not only those inputs with an economic life of three years or more. Essentially, this is SB 267, sponsored by Senator Stuart Adams and passed through the Senate during the 2015 session. The 2013 prototype dynamic fiscal note showed that the cost to the state of this policy change would be $22.5 million less than the estimate produced from a static fiscal note. When considering the growth that could occur in wages, jobs, and GDP in Utah, the legislature sees a much clearer picture of the true trade-offs involved in cutting taxes. Dynamic scoring is needed in Utah to help policy makers see the real effects of policy and decide which policies achieve Utah’s goals most effectively.
Next year the legislature will revisit the manufacturer’s sales and use tax exemption, and your Utah Taxpayers Association will continue working to educate and inform legislators of both the seen and unseen fiscal impact of such policy. Tax cuts shouldn’t been seen as expenses to the state, but rather, as catalysts in spurring economic growth and development in the state of Utah.