Issues
Tax and Budget
Making Utah Taxes Fair for All Families
Most of us don't enjoy paying taxes. We do it, though, because pooling our money together through taxes makes it possible for us to have roads, schools, libraries and parks, fire fighters and law enforcement, and so many more public goods that none of us could afford on our own.
Tax policy (the ways we choose to collect taxes) impacts everyone, and often in many different ways. You may have very recently paid sales tax on your groceries, gas tax at the pump, property taxes on your home or through your rent, and of course, income tax on the money you earn.
From state to state, tax policy is unique; no two states collect taxes the same way. Tax policy also changes a lot over time. Different types of taxes affect people differently, depending on whether they have higher or lower incomes.
Some tax policies and structures promote fairness and equity. Other approaches to taxes contribute to social inequality. When tax policies burden lower-income people more than very wealthy people, who can more easily afford to pay higher taxes, we consider that unfair. Sometimes those kinds of tax policies are called "regressive."
States with the most unfair tax structures typically have:
- have no or little income tax,
- have no refundable tax credits, and
- rely on high sales and excise* taxes.
How Fair is Utah's Tax Structure?
Analysis by the Institute on Taxation and Economic Policy (ITEP) shows that in Utah, low- and middle-income families pay more of their income in taxes than the wealthiest households.
We judge Utah's tax fairness holistically, by looking at all the taxes that are paid by families at different income levels. This is the "effective tax rate," or the share of overall household income a family spends on income, sales/excise and property taxes in a year. The table below shows the effective tax rate of Utah households, depending on how much income they earn each year.
In Utah, 20% of families make less than $23,000 per year. These families pay approximately 7.5% of their total income in state and local taxes. By comparison, the top 1% of Utah families - which are earning more than $487,000 per year - pay an effective tax rate of only 6.6%.
But the Utah families who pay the most in taxes are those in the middle. Middle-income households (making between $40,000 and $104,000 per year) have an effective income tax rate from 8.1% to 8.8% - the highest effective tax rate of all income levels.
Towards Fairness: Tax Credits that Actually Work for Working Families
One way to make our state tax structure more fair is through carefully constructed income tax credits. When tax credits cut out families that pay less in income tax - like our non-refundable Earned Income and Child Tax Credits - then the families who are struggling most, benefit the least. Some legislators argue that families who don't pay as much income tax don't "deserve" to fully benefit from tax credits. But those families clearly pay more in overall taxes than any other income group.
Babies don't pay any taxes - but the households they live in do. Working families with young children deserve a tax system that supports them as they care for and raise the future leaders of our state. Having a fair tax structure in Utah means making sure children, and the households they are living in, have enough money to afford the things they need.
Learn How Better Income Tax Credits Help Families
Glossary
Effective Tax Rate: the share of income a family spends on taxes. This is calculated by dividing the amount families pay in taxes by their annual household income.
* Excise Tax: a tax directly levied on certain goods by a state, such as fuel, liquor, or cell phone plans. They are paid by the merchant before the goods can be sold and passed to the consumer through higher prices before the sales tax is added.
Nonrefundable Tax Credit: reduces the taxes owed - 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 Credit: a dollar-for-dollar amount that a taxpayer claims 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.
Tax Liability: the amount of taxes owed by a taxpayer to the government before taking into account allowable tax credits.
Tax Policy: policies that determine how we to collect taxes.
Utah Education Funding: Legislative Leadership vs The Data
At two large pre-legislative events in the second week of January, hundreds of attendees heard Utah's Senate President proudly assert that Utah was the only state that increased education funding during the pandemic.
Every year, especially around the end of every legislative session, Utah's political leaders proclaim that they are putting record amounts of funding into education.
Unfortunately, these claims are contradicted by the data published by the Utah State Board of Education in its Superintendent's Annual Report.
Real FY21 and FY22 State + Local Education Funding Did Not Rise -- It Fell
These data are from the USBE Superintendent's Annual Reports, adjusted for inflation using the standard CPI-U inflation index from the federal Bureau of Labor Statistics. They show that Utah's real (inflation-adjusted) state + local education funding fell in both FY21 and FY22, both in total and on a per-student basis. (During those two fiscal years, the Utah Legislature passed over $300 million in income tax cuts.)
State Education Funding Has Fallen While Local Education Funding Has Risen
We have heard legislative leaders assert every year that they have appropriated record amounts for education. We have also sometimes heard them say that local education funding (from property taxes) has not kept up, and that is the reason that overall education funding is inadequate to reduce Utah's largest-in-the-nation class sizes or address our high rates of new teacher turnover. Yet the data from USBE show two trends that contradict these claims, as illustrated in the chart above:
- Real per-student state education funding was 2.5% lower in 2022 than in 2008 (the peak year for education funding before the Great Recession).
- Real per-student local education funding was 12% higher in 2022 than in 2008.
It is also worth noting, in this context, that permanently cutting the state income tax rate, as the Legislature has done in recent years and is considering doing once again this year, tends to put additional pressure on local property taxes to make up the difference for schools. The income tax and the property tax are the two main sources of funding for education. If policymakers intentionally and repeatedly undermine one of them, that inevitably creates pressure to increase the other (or allow it to increase naturally, as has happened the last two years with property taxes as home values have shot up).
Can We Have Record Education Funding and Record Tax Cuts?
Legislative leaders have used their incorrect claims that Utah increased education funding during the pandemic to bolster their case that Utah can have it all -- record high levels of education funding and record tax cuts. But USBE data reveal that, in fact, we cannot have it all, that tradeoffs exist, and that hard choices must be made. If we have record tax cuts, we likely will not have record levels of education funding. If we want to strengthen education finance for the long-term betterment of our children and our state, we ought to consider what we are giving up when we give in to the tax cut temptation.
One Final Comment: Inputs vs Outcomes
Needless to say, this entire discussion concerns only inputs to, not outcomes of, our K-12 public education system. But, as one superintendent wisely observed over a decade ago, "We cannot have the best school system in the country and be the lowest in the country in funding. We can't be first if we're always last."
While there is little doubt that Utah does more with less in our public schools better than probably any other state, there are several key educational outcome measures that most concern Voices for Utah Children:
- Our high school graduation rates are no higher than or below national averages for nearly every racial and ethnic category.
- Our high school graduation rate gaps between haves and have-nots and between majority and minority groups are larger than nationally.
- Our rate of college degrees, an area where Utah's older generations outpaced the nation, has fallen behind the nation's among our younger generation, the Millennial generation, based on Census data for Utahns age 25-34.
Closing these gaps and regaining our once enviable lead will require substantial new investments at every step in the pipeline, from expanding pre-K and full-day kindergarten options to reducing class sizes and new teacher turnover in our elementary, middle, and high schools, to ensuring that more of our sons and daughters finish what they start at our public colleges and universities.
Note: The charts in this blog post are from Voices for Utah Children's forthcoming "Children's Budget Report 2023" that will be published in February 2023.
Both graphs are available for download here.
Methodology and Location of Data
Utah’s education funding rises each year, but so does the student population. And prices rise due to inflation, which has been worse the last year than in 40 years. So how can we judge whether education funding is really going up, as our political leaders always claim? There is one metric considered to be the gold standard for this purpose: inflation-adjusted per-student spending. To calculate this metric, you need three pieces of data. The locations of these items are detailed below:
1. State, Local, and Federal Education Spending
Source: Utah State Board of Education Superintendent’s Annual Report at www.schools.utah.gov/superintendentannualreport
Direct Document Link: Statewide Total: Revenue and Expenditures by Fund, June 30, 2022 https://www.schools.utah.gov/file/674392fc-3946-4ba2-ba19-da7f024f3fe5
Comments: In the charts above, we used the state and local education spending data
2. K-12 Student Population
Source: Utah State Board of Education Superintendent’s Annual Report at www.schools.utah.gov/superintendentannualreport
Direct Document Link: Fall Enrollment by Grade Level and Demographics, October 1, School Year 2022-2023 https://www.schools.utah.gov/file/5c8e2fac-55dc-4f0a-bf6a-6889133e4ffe
Comments: Be sure to use the fall enrollment data from the fall of the year you are analyzing. For example, for FY/SY22, use October 2021 enrollment data.
3. Inflation Index CPI-U
Source: US Bureau of Labor Statisticshttps://www.bls.gov/data/home.htm
Direct Document Link: All Urban Consumers (Current Series) (Consumer Price Index - CPI) https://data.bls.gov/cgi-bin/surveymost?cu U.S. city average, All items - CUUR0000SA0....then use “Annual Averages”
Google Sheet with all collected data, sources & formulas
https://docs.google.com/spreadsheets/d/1fTy8wKHY6Di33eRLTcM7Ce1B5Caw10sb/edit#gid=534909710
