Guest Opinion: State Income Tax Cut: Win or Loss for Utah’s Middle Class? | News, Sports, Jobs


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Matthew Weinstein

The Utah Legislature just passed halfway through its 2022 session and just passed a reduction in the state income tax rate from 4.95% to 4.85%. The legislative tax analyst says that means $164 million less in the state education fund and another $164 million in the pockets of Utahns. The sponsors of the bill have publicly said that, for a family of four with a median income in Utah of $72,000 per year, that would mean about $98 per year.

Have you ever wondered how it is possible that a tax rate cut that only gives middle-class families $98 could deprive our schools of $164 million in revenue? Maybe you’ve done the math: $98 multiplied by about 1 million households is much less than $164 million. And it seems even stranger when you consider that families below the median income would get much less from this tax cut. Not only that, but most one-fifth of Utahns with the lowest incomes — those earning less than about $30,000 a year — are completely sheltered from income tax. (However, they pay other taxes, such as gas, sales and property taxes, which is approximately 7.5% of their meager earningswhich is actually a higher effective tax rate than that paid by the highest income Utahns.) So how is it possible that an income tax cut that lower income Utahns won’t see not and which will bring only $98 a year to middle-income families may end up costing Utah’s education fund a grand total of $164 million?

The answer lies in what can sometimes seem like the magic math of income tax.

The most magical part of income tax can be described as what I call the three-fifths/one-fifths rule. Three-fifths of Utah’s income tax is paid by the wealthiest one-fifth of households, those earning more than $135,000 a year. (And four-fifths is paid by the wealthiest two-fifths, those earning more than about $85,000.)

Is it unfair to high-income Utahns to be asked to pay the majority of income tax? In fact, they don’t, as they earn the majority of all income in Utah. According to Data from the Utah State Tax Commission, the same three-fifths/one-fifth rule applies to Utah income as it does to income tax. In other words, the wealthiest fifth of Utah households earns about three-fifths of all income in Utah. So we can see that income tax is the only tax in the Utah tax system that actually matches Utah income. In fact, it’s the only non-regressive tax we have. All other taxes—property tax, sales tax, gas tax—are regressive taxes. This means that when we lower the income tax rate, not only are we giving a huge windfall to families who need it the least, but we are also making our overall tax system more regressive instead of lowering it.

That means the income tax rate cut that barely helps the median-income family with that extra $98 a year actually gives the wealthiest Utahns thousands of dollars a year break. In fact, one-fifth of the tax cut goes to about 1% of households earning more than half a million dollars a year, giving them each an average tax break of $1,500 – and more. for millionaires and more.

But it’s getting worse. This average middle-class family with two kids in school is actually losing a lot more than that $98. When you divide the $164 million price tag by Utah’s K-12 student population of about 675,000, and then multiply by two kids in school, that average family earning $98 in tax relief are giving up $485 that is no longer going to be spent on their children’s education each year. Not going to be spent on smaller class sizes or more experienced teachers or more up-to-date technology. It will not be spent on closing the gaps in our education system between majority and minority groups and between haves and have-nots, gaps that are greater than nationally.

Ouch.

Because that’s the magic of income tax. Middle-class families pay a modest amount and get back many times more. This is a very good return on investment. It’s also a great investment in Utah’s future. Unfortunately, for middle-class Utah families, this year’s income tax rate reduction will mean a lower return on investment and less investment in Utah’s future.

Matthew Weinstein is director of tax policy at Voices for Utah Children, which has worked since 1985 to make Utah a state where all children thrive.



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