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Tax Task Force Begins Weighing Options, Including Reducing the Income Tax

After eight town halls across Utah, the Tax Restructuring and Equalization Task Force began to weigh its options in August. Your Taxpayers Association attended seven of those town halls and is participating in all remaining Task Force meetings. 

In its August 19 public meeting  it was obvious Task Force members were taking their work very seriously. There was almost perfect attendance and members stayed until the end after 3 hours of intense study. The Task Force released its listening tour report, and results from the more than 1,500 attendees and hundreds of comments which were somewhat mixed. 

As you can see from this word cloud produced by the Task Force, many people were opposed to taxing certain services and wanted better control of spending. 

According to the report, many people mentioned that they were not convinced with the Legislature’s argument that a change as dramatic as was proposed during the 2019 Session is necessary. Generally, people were opposed to an increase in taxes, which both the Legislature and the Governor have agreed to. 

The report also details that many attendees and comments were strongly opposed to sales tax on services, with an emphasis on avoiding tax pyramiding. However, others were not entirely opposed to the sales tax on services, as long as it only impacts final consumption, in order to avoid business-to-business transactions. This has long been a call from your Taxpayers Association, and we continue to beat the drum to ensure that tax pyramiding is avoided at all levels.

If you’re interested in learning more, you can read the report here

The Task Force also began weighing options for tax reform, based on public comment and discussions during the 2019 Session, unveiling these eight  guiding principles: 

  • Competitive
  • Sufficient
  • Sustainable
  • Stable
  • Flexible
  • Fair
  • Simple
  • Transparent

Your Taxpayers Association is very encouraged by these principles, which align with ours. 

The first of the possible solutions the Task Force discussed was restoring the sales tax on food. Unprepared food items are taxed at a lower state sales tax rate, currently 1.75%, as compared to the general sales tax rate of 4.85%. Your Taxpayers Association has long believed that this is a necessary change the Legislature ought to make, and are encouraged by the Task Force’s discussions. 

Restoring the food sales tax will not only create a stable source of sales tax revenue, but it will also ease compliance for retailers, who have to classify each item in their inventory based on certain criteria set by the Legislature. 

If the Legislature were to restore the food tax to the full state rate, it would generate roughly $250 million in sales tax revenue annually, beginning in FY 2021. 

The sales tax is generally seen as regressive, with lower-income people paying more of their income on food. However, the tax break on food also helps the wealthy far more than the poor. Those that spend higher dollar amounts on food are banking a significantly higher tax break than those who spend less. Restoring the full sales tax on food corrects this benefit that is largely going to higher income individuals.  Also keep in mind, those on SNAP or other government benefits are exempt from the tax. 

In order to protect the working poor, Utah could enact a grocery tax credit, which could be claimed through the income tax filing. Of the 7 states that have their populations pay the full sales tax rate, four provide some kind of tax relief in this way. 

If this were to be enacted along with restoring the sales tax on food, that grocery tax credit would return $65 million to qualifying taxpayers, considering a single filer makes less than $30,000, and a married-filing jointly less than $60,000. 

Another option the Task Force heard was the possibility of enacting an Earned Income Tax Credit (EITC). The EITC could possibly be used to offset the restoration of the sales tax on food, although EITC is generally more broadly applied. The federal government and 29 states offer varying degrees of EITC. Typically, EITC offered by a state is valued as a percentage of the federal EITC the resident qualifies for. Utah could adjust this to target only specific populations, or apply it broadly to those who are low- to moderate-income earners. 

If the Legislature were to enact an EITC at 10% of the federal level, taxpayers would receive $45 million in return. 

Another idea that has been building momentum over the past few years is exempting social security income from the state income tax. Utah is one of 13 states that still taxes this source of income. However, Utah does offer a retirement tax credit to those born before 1953, to help offset increasing costs and taxes. 

During the 2018 Session, then Rep. John Westwood sponsored a bill to exempt social security income. While this bill did pass the House, the Senate did not vote to approve the bill. This idea was also tied into HB 441 during the 2019 Session. 

If social security income were exempted from income tax, the cost to the state would be $33 million. 

Finally, the Task Force examined the ramifications of lowering the income tax rate. In Utah, due to our population and job growth, the income tax has far outpaced the growth of any other tax levied by the state. All income tax revenue is constitutionally required to be spent on education. 

Your Taxpayers Association has called for cutting the income tax rate, because that would provide the greatest economic boost to the state by incentivizing out-of-state business to locate here, as well as in-state business to expand and hire more employees. Lower income taxes also benefit individuals and families. 

Each cut of the income tax by 0.05% would return $55 million to taxpayers. 

The Task Force  is not taking public comment during this phase of its work but will after it has a proposal for consideration. There will be meetings in the coming weeks to discuss more proposals and weigh options. We’ll be there.



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