Poverty

Tax policy is complicated. Talking about taxes involves jargon, and concepts that can be confusing. For example, what is a 'refundable' tax credit? What exactly does that mean, and how does it help families? We answer these questions here with a quick breakdown of what refundability is and how it impacts families.

What is a "refundable" tax credit?

When a tax credit is refundable, it is available to all families. Even if a family doesn’t owe anything when they file their income taxes, a refundable tax credit makes it possible for them to get money back in the form of a tax refund. Families can then use that money to pay for necessities. 

What is a "non-refundable" tax credit?

A non-refundable tax credit can only ever be used to pay for taxes. If a family doesn’t owe any taxes after deductions, they can’t access any of the tax credit. If the family only owes a little in income taxes, they can only use the non-refundable credit to pay down whatever they owe.

How does refundability impact a family like yours?

In the illustrated example below, the Thompsons have two young children and make a family household income of $39,520 for the year. Based on their income and after deductions, they owe $200 in taxes. Now imagine they qualify for a $500 tax credit. Refundability can greatly impact how much they owe in taxes and whether they'll keep more of their earnings through a refund. 

If the $500 tax credit is non-refundable, it will be applied to offset what the Thompsons owe in taxes. Since they owe $200, the credit will help reduce the amount they owe to $0 – a positive outcome.

However, an even better outcome for young families arises when that $500 tax credit is refundable. If refundable, the $500 tax credit can go towards the amount they owe in taxes ($200) and the remaining amount of $300 would go back to the Thompsons as a refund. This $300 can help with expenses like car repairs, new winter coats for the kids, and baby formula. Though it may not seem like a lot, families facing financial challenges can make good use of this help.

To learn more about making Utah’s EITC refundable, go here.

To learn more about making Utah’s CTC refundable, go here.

To read about other refundable tax credits in Utah, go here.

Glossary

Tax Credit: a dollar-for-dollar amount that a taxpayer (s) claim on their tax return to reduce the income tax they owe. You can use this to reduce your tax bill and potentially increase your refund amount.

Nonrefundable Tax Credit: reduces the taxes you owe --- allows a taxpayer to only receive a reduction of their tax liability until it reaches zero.

Refundable Tax Credit: allows a taxpayer to receive a refund if the credit they receive is greater than their tax liability.

Tax Policy: policies that determine how we collect taxes.

Why Voices Opposes Proposed Income Tax Cuts

Over the past four years, Utah's Legislative Leadership has consistently prioritized tax cuts above the needs of Utah's families. Despite a $400 million tax cut passed last year that benefited the most wealthy Utahns, and now fearmongering about a supposed $130 million budget shortfall, Legislative Leadership is yet again pushing for another $170 million in tax cuts. 

As the 2024 Legislative Session unfolds, many legislators will claim a need to curb spending and tighten purse strings - that we can’t afford to fully fund social services or any new programs. The question arises: How can we afford $160 million in tax cuts when many crucial needs remain unmet? In a time when working families are struggling to afford groceries, granting more tax cuts to the wealthy is a step in the wrong direction.

Who Benefits from the Proposed Tax Cuts?

The proposed tax cut will help the richest 1% more than anyone. Our analysis shows the proposal will save the bottom 80% of Utah earners between $24 and $107. While the top 1% of Utah earners will save a whopping $2,676. These tax cuts will not provide real help to working families.

Out of the proposed $170 million tax cut, $40 million will go to the top 1% of Utah's wealthiest individuals. In contrast, the bottom 80% will split about $61 million.

Note: This image was updated to reflect the changed fiscal note for SB69, increasing the estimate from $160 Million to $170 Million on 2/23/24. 

Utah's Unfair Tax Code

Contrary to the argument that the top 1% pays more in taxes, the reality is that low- and middle-income families bear a higher tax burden. Families making less than $29,900 per year pay 9.8% of their total income in state and local taxes, while the top 1% pays an effective tax rate of only 6.4%.

Why Voices Opposes the Proposed Income Tax Cuts

Voices for Utah Children opposes the proposed tax cuts due to the unmet needs of children and families in Utah. Our income tax should be used to increase funding for education, child care, nutrition, mental health programs, and other services with long-term societal benefits.

The appeal of tax cuts fades when we realize it means losing essential services. Children need us to be their voice, and we need to show up and advocate for their future. It's not just the right thing to do for them; it's a move that benefits all of Utah. Here's why investing in children pays off:

• Investment in the future: Children are the future, and investing in their well-being leads to positive long-term outcomes. Early childhood interventions improve educational attainment, job prospects, and overall health, benefiting society as a whole. This includes supporting our child care system, which is facing a loss of nearly $600 million in federal support this year.
• Promoting equality: Programs for children often target low-income families and disadvantaged communities, narrowing the gap in opportunities and promoting a fairer society. Access to quality education, healthcare, and essential services can break the cycle of poverty, creating an even playing field for every child.
• Stimulating the economy: A healthy, educated population contributes to a stronger economy. Investments in children's programs create a ripple effect, boosting productivity, encouraging innovation, and fostering economic growth in the long run.

We need to hit pause on tax cuts and instead acknowledge that investing in children is the better path to follow. It will lead to a stronger and more prosperous Utah, and those benefits will far outweigh any tax cut currently being considered. 

The care for the children in our state and communities can be measured by our public investment in our smallest humans. From the fiscal year 2008 to 2022, Voices for Utah Children divided all state programs concerning children into seven categories, without regard to their location within the structure of state government to quantify the level of public funding and identify trends. The seven categories are:

1. K-12 Education
2. Health
3. Food & Nutrition
4. Early Childhood Education
5. Child Welfare
6. Juvenile Justice
7. Income Support

An appendix of our tables, sources, methodology and description of programs can be found here. 

How Much We Spend

The interactive circle chart below compares how much we spend by category, program, and source of funding, just use the filter and click the category to zoom in.

• K-12 Education makes up 92% of the state-funded portion of the Children’s Budget, while the federal-funded portion is more diversified across categories.

Spending Trends

We compare the budget to FY2008 because that was a peak year in the economic cycle before The Great Recession and all figures have been adjusted for inflation, so they are comparable across time.

• From FY2008 to FY2022, total public investment in children increased by 43%, growing much faster than Utah’s public-school enrollment (district & charter schools) by 26%, or the child population ages 0-17 by 13% from 2008-2021.

The federal share of the Children's Budget has fluctuated between 18-26% but had its biggest increase at the beginning of the Great Recession and the Covid-19 Pandemic. This is also when state funding for the Children's Budget has declined, for example real state & local K-12 education funding fell by $206 million since FY2020, the largest two-year decline since the Great Recession in 2008-2010. Several years after the Great Recession the federal share of the Children’s Budget decreased and the state share started to increase again, something that will hopefully happen again as pandemic relief funding rolls back. 

Funding Sources: Federal vs. State

When the categories are disaggregated by source of funding, Food & Nutrition, Income Support, Health, and Early Childhood Education programs are mainly funded by federal sources, and Child Welfare, K-12 Education, and Juvenile Justice programs are funded mainly by state sources. And since Amendment G passed and allowed the income tax to be used to fund programs for children (in addition to K-12 and some Early Childhood Education & Nutrition Programs), the Child Welfare, Juvenile Justice, and Health categories are funded primarily by the income tax. In FY2022, 98% of Juvenile Justice, 100% of Child Welfare, and 88% of Health categories of the state funded Children's Budget were funded by the income tax totaling to $475 M.

When examining the state-funded portion of the budget since FY2008 each category has a different story. 

• Juvenile Justice programs declined the most in dollar amount, $32.9 M or 28% mainly due to a reduction in correctional facility and rural programs and it also had an increase in early intervention services which advocates consider to be a goal of juvenile justice reform.
• Child Welfare programs declined by 16% or $21.8 M, mainly from the Service Delivery program which funds caseworkers to deliver child welfare, youth, and domestic violence services. 
• Income Support declined 49% or $2.1 M and appears to be more cyclical, rising and falling with the Great Recession. Interestingly, the TANF grant is a mix of state and federal funds, and only a small amount goes to Income Support or cash assistance.[i]  
• Food & Nutrition increased by 56% or $19.7 M due to an increase in liquor & wine tax revenues which supports the school lunch program.
• Early Childhood Education had the largest percentage increase of 109% or $42.0 M mainly from the Upstart program but increasing in every program except Child Care Assistance.
• Health has increased by 80% or $139.3 M from the Medicaid and CHIP program but also had a 58% or $12.4 M decrease in Maternal & Child Health. 
• The category that has increased the most in dollar amount is K-12 Education.

K-12 Education Funding

State and local sourced funding for K-12 education increased by $1.6 billion in constant 2022 dollars from FY2008 to FY2022, but per-pupil spending only increased from $10,212 to $10,537 per student. This means that even though more is being spent in total dollars, it barely covers the increase in students during the same time.

In 1948, 100% of the income tax was allocated to public education, an increase from 75% when it was originally imposed in 1931. It was expanded in 1996 to include higher education, in 2021 to include non-education services for children and people with a disability, and may be expanded again depending on a 2024 ballot measure placed by the Utah Legislature.  

The income tax rate has been reduced in 1996, 2006, 2008, 2018, 2022, and 2023.  The graphs below illustrate a timeline of these changes and Utah’s total elementary and secondary public schools (district & charter) funding effort (including capital) as a percentage of personal income and rank compared to other states.

Unfortunately, the result is a downward trajectory and likely explains our second to last place in per-pupil funding in the country.[ii]

Utah's Education Funding Effort as a Percent of Personal Income

According to the fiscal notes, the last two bills that reduced the Income Tax rate in 2022 and 2023 estimated a loss of $1.3 billion in the Income Tax Fund from FY2022-2025 with more ongoing.[iii]

State & Local Funded Portion of K-12 Education

Another result of these changes has been shifts in the funding source for K-12 education. From the fiscal year 2008 to 2022, the federal-funded portion increased by 74% and the state-funded portion declined by 3%.

Meanwhile, Local sources have increased by 12%, possibly to meet the needs of their communities while state-funded sources decline and putting greater pressure on sources like the property tax which is more regressive than the income tax because it takes a greater toll on low-and middle-income families.

Rank of Utah's Education Funding Effort Compared to Other States

We Need to Prioritize Children in the Budget

While Utah doesn’t have the most kids than any other state, we do have the highest share of kids in our population. And we as a community are entrusted to make sure they are cared for, safe, and have the tools they need to achieve their aspirations. As the Utah Legislature drafts, holds hearings on, debates, and passes the Utah state budget we hope they prioritize our most vulnerable and precious group, Utah’s children.

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[i] https://www.cbpp.org/sites/default/files/atoms/files/tanf_spending_ut.pdf 

[ii] https://www.census.gov/programs-surveys/school-finances.html 

[iii] https://le.utah.gov/~2022/bills/static/SB0059.html, https://le.utah.gov/~2023/bills/static/HB0054.html These fiscal notes show the loss from the income tax fund but they are not disaggregated by changes from the income tax rate or tax credit portion of the bills.