The Utah Legislature convened Dec. 12, for a special session to consider the Tax Restructuring and Equalization Task Force’s work over the past year.
The legislature passed a sweeping bill that changes how taxes are collected in the state. Below is a summary of the changes as provided by Utah Sen. Ralph Okerlund —
The change that will have the biggest impact in this bill is the income tax cut. The individual and corporate income tax rates were reduced from 4.95 percent down to 4.66 percent for everyone.
Additionally, we expanded the “Utah Dependent Exemption” from $565 to $2,500. Many of our families were negatively impacted by the federal tax reform bill of 2017 when the US Congress eliminated tax credits for dependents. This change in SB 2001 will be a great help to our families. Those who are eligible to receive this credit will receive a rebate in early 2020 based on 2018 tax filings.
An important part of stabilizing our revenue was restoring the full sales tax on unprepared food. We understand this can be burdensome to some of our population, which is why we created a “Grocery Tax Credit” for low-to-middle income residents. The grocery tax credit is a $125 refundable income tax credit for each member of the household, up to four people, then $50 for each additional member of the household. Those families and individuals at or below 100 percent of the Federal Poverty Line (FPL) will be able to receive a portion of the credit early, as a pre-bate if you will, in July 2020, to further offset the tax rate restoration.
For a few years now, I have heard from a number of my retired constituents about taxes on Social Security Income. This bill creates an income tax credit for Social Security retirement income. I think this is a real highlight of this bill and it will benefit our retired citizens who are living on a fixed income.
As a final highlight on the tax credits created under the bill, we created an Earned Income Tax Credit for those experiencing intergenerational poverty.
Transportation Funding — It is essential that we properly maintain our infrastructure. Road maintenance and construction are best funded by true user fees. The gas tax is currently the best option we have for a user fee, but it is certainly not the perfect solution. As we see more hybrid and electric vehicles on our roads, we see a decline in gas tax revenue, even though there are more cars than ever on the road. As a temporary fix, we adjusted the gas tax to better fund transportation, but we need to transition to a true user fee option in order to fund infrastructure in a reliable and equitable manner. The Utah Department of Transportation (UDOT) is researching potential solutions on ways to implement a fair, true user fee and is required to report on the current status of user fees annually. Once net revenues reach certain thresholds relative to revenue generated by the sales tax on motor fuel, the Legislature will consider reducing the sales tax on motor fuel.
Services — We’re seeing that younger generations are more likely to spend money on services and experiences rather than things. As we move to a service-based economy we need to make sure we create a consistent approach for our businesses. Currently, a limited number of service industries collect and remit sales tax. This bill brings more service industries under that umbrella. It is important that we level the playing field for our businesses.
Education Funding — To create more funding for education this year, we shifted higher education funding from the income tax fund to the general fund, allowing more money to be rededicated to K-12 education. Education funding is an investment in the future of Utah. We have increased new spending on public education by $1.2 billion in the last four years, and that trend will continue. We did not address the constitutional earmark on income for funding education during the special session. We also did not change anything with regard to property tax. This is something we will continue to work on and research as we look for more stable, flexible options that can offer more funding for education.
Why tax reform? Many Utahns do not understand why we as a legislature decided to work on tax reform. The reality is we have a budget problem. This is something that was brought to the attention of legislative leadership a few years ago by our non-partisan Legislative Fiscal Analyst’s office. When this first came to our attention, we thought we would have a couple of years before the issue started to impact our budget, but we are already beginning to see the impact of the imbalance of our budget structure.
The state’s budget is composed of three main funds — General Fund, Education Fund and Transportation Fund. The General Fund is responsible for funding nearly every single function of government, from social services to public safety, and is largely funded through sales tax. Sales tax in Utah is largely focused on goods. As our economy evolves with new technology and trends, the sales tax on goods becomes a less reliable revenue stream. The sales tax on goods is still a positive revenue source, but it does not keep pace with our growing population.
The Education Fund receives funding through a mandate in the Utah Constitution that all income tax revenue be dedicated solely to education. This is a provision unique to Utah. Income tax revenue is currently up in Utah, but it is one of the most volatile revenue sources in our economy. There is only a 30-percent correlation between increases in income tax revenue and funding of public education in the last 20 years. When an economic downturn hits, income tax is impacted, which then limits funding for education.
The Transportation Fund is largely funded through the gasoline tax. Until a couple years ago, the gasoline tax went largely unchanged for roughly two decades, which impacted and is still impacting our ability to fund roads solely through the Transportation Fund. Last year, instead of funding our roads solely through the Transportation Fund, nearly 40 percent of the road funding came from the General Fund due to lack of revenue in the Transportation Fund.
This is a structural issue, not a revenue issue. We needed to find more reliable revenue sources that keep pace with the rate of population growth and can remain stable in times of economic hardship. The intention is not to implement a tax increase, but to change how we generate revenue for the three different funds.
Medicaid Funding — Behavioral health services in Utah are managed locally and funded through county programs. About 70-90 percent of that funding is appropriated by the state and comes from the federal government.
In the 2019 General Session, S.B. 96 expanded Medicaid and re-allocated $10.4 million in state funds from local mental health and substance abuse resource centers with the understanding that the money would be replaced with federal funds under the Medicaid expansion.
In order for these federal funds to be replaced at the county level, Medicaid enrollment needed to hit certain forecasted targets, which it was projected to do. With enrollments coming in lower than originally anticipated, county programs are seeing budget shortfalls.
S.B. 2002 One-Time Appropriation for Behavioral Health appropriates $3.9 million to behavioral health programs across the state to cover budget shortfalls. The bill does not appropriate new money to the program.
It shifts unused Medicaid funds to the counties to continue to fund these important programs. Ongoing needs will be reassessed during the 2020 General Session following Medicaid’s open enrollment period in December.
Thanks for following me along in my legislative journey. I hope to continually keep you informed about my work on the hill – likewise, please keep in touch – I’d love to hear your insights and opinions. I can also be reached by email at firstname.lastname@example.org.