How low can they go?
In Utah, the extra money this year is somewhere north of $3 billion, which isn’t bad for a state of a little more than 3 million people. In recent years, politicians worried the extra money was the result of government stimulus checks and other federal pandemic spending. They feared it might evaporate faster than the spray of a lawn sprinkler in July. No one wanted to cut too much, because it would be embarrassing, not to mention politically dangerous, to have to come back and raise taxes.
But now, those worries are fading. The money seems to be pouring in, and Utah isn’t alone.
So Gov. Spencer Cox has proposed $1 billion in total tax cuts, including lowering that income tax rate to 4.75%. The smart money is on at least that much of a cut, with cuts to other taxes, and maybe even a rebate of some kind.
When I say Utah isn’t alone, I’m not kidding. Not only is Utah not the only state dealing with a large surplus (Texas has $32.7 billion in extra money), it isn’t the only one looking at tax cuts. The Tax Foundation reports that 38 states had noteworthy tax changes at the beginning of the year, with 11 of them reducing income tax rates.
Some, like Indiana, are toying with the long-term strategy of eliminating the income tax altogether.
That kind of talk tends to get the competitive juices flowing for conservative politicians.
Utah can’t eliminate the income tax right now because its income tax remains earmarked for public and higher education. But a move is afoot, led by House Speaker Brad Wilson, to eliminate that earmark in coming years, with voter approval.
Lawmakers’ disdain for the income tax isn’t just theoretical.
The Tax Foundation, which is an independent tax-policy nonprofit organization based in Washington, just published an analysis of recent Census data, combined with data from the moving companies U-Haul and United Van Lines, showing Americans are leaving high-tax states and moving to low-tax states.
While the nation grew by a paltry 0.4% between July of 2021 and July of 2022, the population of individual states changed because of interstate migration. The foundation found that, in the top third of the fastest growing states, the average top marginal income tax rate was about 4%. In the bottom third — states like New York, which lost 0.9% of its population — it was about 6.6%. Five of those shrinking states had double-digit income tax rates. Most of the states in the top third don’t have an income tax.
Utah ranked as the 10th best state for growth in this study, based on Census data alone. Arizona was eighth and Idaho was second.
Foundation researchers said the trend from low-tax to high-tax states is unmistakable, even though they acknowledge people tend not to research taxes before deciding to make a move.
“People move for many reasons,” policy analyst Janelle Fritts wrote on the foundation’s website. “Sometimes taxes are expressly part of the calculation. Often, they play an indirect role (by contributing to a broadly favorable economic environment). And other times, of course, they don’t factor in at all.
“The Census data and these industry studies cannot tell us exactly why each person moved, but there is no denying a very strong correlation between low-tax, low-cost states and population growth.”
Which explains why, beginning next week, you’re going to see another strong push to return surplus funds to taxpayers in the form of cuts. The more money the state returns to private citizens and businesses, the more of it can circulate through the economy, leading to jobs and economic growth, and the bigger the advantage Utah will have over higher-taxing states.
You might even, finally, see lawmakers eliminating the state’s portion of the sales tax on groceries, which would primarily benefit low-income families who don’t qualify for food stamps.
Let’s hope they finally can learn to limbo that low.