Tax reform repeal starting to impact this year’s state budget

Written by Derek Monson

February 5, 2020

State legislators got some sobering news last week in the wake of the repeal of tax reform. As reported by Utah Policy, the Legislature’s fiscal analyst told the majority caucus that in a couple of years most state programs that Utah families and businesses rely upon – road maintenance, air quality programs, low-income housing and healthcare programs, criminal justice and public safety programs, etc. – will face budget cuts without any changes to the tax system.

From UtahPolicy.com:

For the past several years, the Legislature has been taking about $173 million a year out of the higher education budgets in sales tax, moving it over into General Fund programs, like public safety, health and human services, corrections and such.

 

If lawmakers take another $173 million out of higher education this coming budget — fiscal 2020-2021, which starts July 1 — then there will only be around the same amount, $170 million, that could be transferred over in the following year, a budget set by the 2021 Legislature.

 

After that, unless something is done (another round of tax reform that sticks, and is not opposed by citizens) to balance out the two funds, General and Education, state basic programs will actually have to be cut. Or the sales tax raised, or extended to many services.

Now a lot of that is legislative inside baseball that most Utahns do not particularly care about. But the bottom line is that, for years, legislators have been shifting sales taxes away from state programs that can be funded by income taxes because the growth in income tax revenue has been far greater than growth in sales tax revenue. If things do not change, within a couple years that will likely no longer be mathematically or financially possible. And when that time arrives, there may not be many good policy options.

Will we increase taxes and accept the financial harm to taxpayers and economic harm to the state? Or will we make funding cuts and accept some undesirable social outcomes, such as leaving some low-income families without housing or healthcare, or driving on poorly maintained roads, or breathing less healthy air?

These policy problems are politically thorny. But with the repeal of tax reform, policymakers will soon be forced to face them again. If we can learn from this year’s repeal of tax reform, we may be able to hope for a better outcome the next time around.

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