State Policy

July 30, 2020

State Policy

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Last night, December 12, 2019, the Utah Legislature passed a tax restructuring package in a special legislative session.

Voices for Utah Children was very involved in this process over the course of the year. We attended the Tax Restructuring and Equalization Task Force (TRETF) hearings, generated public comment, released our position paper in September, and later that month participated in a poverty advocates' coalition letter signed by 27 non-profits that work with and advocate for lower-income Utahns. We published two op-eds on September 14 and November 26 as well as numerous blog and Facebook posts and tweets. We also worked directly with Task Force members to evaluate and shape the Task Force proposals.

From the start, we focused on two questions:

  1. Does the tax proposal reduce the regressivity in Utah's tax system so that we are taxing fewer Utah families into - or deeper into - poverty?  Currently, Utah's overall tax system is regressive, in the sense that lower- and middle-income Utahns pay a higher overall tax rate than upper-income Utahns.
  2. Does the tax proposal enable Utah to invest more in the long run in Utah's children -- their education, their health, their future prospects to become productive members of their communities and of our state? The State Tax Commission and the Utah Foundation have both published research this year documenting that our overall level of taxation stands at a multi-decade low, raising the question of whether the current generation of Utahns is doing our part, as earlier generations did, to set aside sufficient resources every year to invest in our children. As the poverty advocates' coalition letter detailed, our decades of tax cutting have left Utah with billions of dollars in urgent unmet needs in numerous areas.

So how did the final bill passed last night stack up according to these criteria?

Will it reduce regressivity?

While the idea of bringing back the full sales tax on food was not a part of our proposals, and in fact we proposed eliminating the sales tax on food entirely, our analysis of the near-final version of the bill found that, overall, it will reduce the impact of Utah's taxes for lower-income Utahns from 7.5% of their incomes to 7%, or by about $100 per year, IF they file for the new Grocery Tax Credit (GTC).

The Legislature’s analysts estimate that 30,000-50,000 low-income Utah households do not file taxes every year, because their incomes fall below the mandatory minimum.  Thus, in order to maximize the number of households who file for the credit, Voices for Utah Children proposed, fought hard for, and, on the final day, won inclusion in the package of $500,000 to market the new tax credit to its target population. We also recommended that the bill be amended to add an automatic inflation adjustment for the GTC so that it would not lose its value over time, but that was not included in the bill.

Grocery Tax Credits have considerable drawbacks (mainly that they require the filing of paperwork to obtain them) and vary greatly among the half-dozen states that have them. But the one passed last night will likely be the most generous and accessible one in the nation for lower-income households, based on the amount of the credit, its eligibility rules, and the commitment to invest substantial resources to publicize it.

The bill also makes Utah the 30th state with our own Earned Income Tax Credit (EITC), amounting to 10% of the federal credit and fully refundable, aimed at the 25,000 working families in Utah's intergenerational poverty (IGP) cohort. The inclusion of this provision – which was pulled from the bill for several very tense hours Thursday afternoon – is a credit to the persistence of Rep. Robert Spendlove, the sponsor of HB 103, chair of the House Revenue and Taxation Committee, and member of the TRETF.  This is something that many Utahns have sought for decades, and Voices for Utah Children is grateful to the dozens of partnering organizations that have advocated for it alongside us in recent years.

Will it invest more in children?

Unfortunately, the answer here is no. The Governor and Legislature gave in to the election-year temptation to boast about a big tax cut. The bill reduces income taxes by over $600 million and replaces less than $500 million of that revenue with new sales taxes, leaving the state with $160 million less revenue every year going forward to invest in Utah's children.

Voices for Utah Children had strongly advised against using the state's current temporary fiscal surplus to permanently reduce revenues. We see this as a missed opportunity to act now for the state's long-term future, especially given that the shift from income taxes to sales taxes brings in tens of millions of new dollars from non-Utahns, which would have made it possible to offer an in-state tax cut while enhancing revenues or at least holding them steady.  

Moreover, the shift from the faster-growing income tax to the slower-growing gas and grocery sales tax raises the question of whether public revenues will keep up with our fast-growing economy and population in the years to come, a point noted by Rep. Tim Quinn at the final TRETF meeting this past Monday. On the positive side, the bill does expand the sales tax base to some services and closes some outdated sales tax exemptions, which are small but important steps in the right direction.  

It is also noteworthy that, because of the income tax rate reduction from 4.95% to 4.66%, about half of the overall net in-state tax cut of about $200 million annually goes to the top quintile of Utahns, those making over about $120,000 per year, and most of that half goes to the top 1% of Utah households, those earning over about $590,000. 

As detailed in the poverty advocates’ coalition letter, our state suffers from chronic revenue shortages in numerous areas due to our decades of tax cutting, and these shortages disproportionately impact lower-income households. They also keep Utah from getting out ahead of our next-generation challenges, such as closing the majority-minority gaps that are worsening over time, even as our non-white communities are growing and becoming a more integral part of every region of Utah. 

Thus, it is clear that a major challenge remains before Voices for Utah Children and other advocates in the years to come to make the case to the public and policymakers that it is worth investing more in our children, not less.  

Published in News & Blog

Utah Poverty Advocates Call for Fairer Taxes and Restoration of Public Revenues

Salt Lake City - Today (September 26, 2019) at the Utah State Capitol, a group of two dozen non-profit organizations that provide services to and advocate on behalf of Utah's low- and moderate-income population released a letter to the Tax Restructuring and Equalization Task Force. The letter calls on the Task Force to consider the impact on low-income Utahns as they consider tax changes that could, in the worst case scenario, make Utah's tax structure more regressive and less able to generate the revenues needed to make critically important investments in education, public health, infrastructure, poverty prevention, and other foundations of Utah's future prosperity and success. 

The text of the letter and the list of signatories appears below (and is accessible as pdfa pdf at this link): 

 Open Letter to the Tax Restructuring and Equalization Task Force (TRETF)

Tax Reforms for Low- and Moderate-Income Utahns

September 2019

Dear Senators, Representatives, and Other Members of the TRETF:

We, the undersigned organizations that work with and advocate for low- and moderate-income Utahns, urge you to consider the impact on the most vulnerable Utahns of any tax policy changes that you propose this year.  

We urge you to address the two major challenges facing our tax structure as it impacts lower-income Utahns:

1)     Utah’s current system of taxation is regressive, in the sense that it requires lower-income Utahns to pay a higher share of their incomes to state and local government than it asks of the highest-income Utahns, even though about 100,000 lower-income Utah households are forced into – or deeper into – poverty by their tax burden every year. 

           ITEP Utah WhoPays graphic

This regressivity could be addressed with tax policy changes including the following: 

  1. A Utah Earned Income Tax Credit (EITC) to allow the working poor to keep more of what they earn.
  2. Remove the sales tax entirely from food, as 34 other states have done.
  3. Remove the state income tax on Social Security benefits for low- and moderate-income seniors; Utah is one of only 13 states that tax these benefits.
  4. Restore the income tax rate to 5% or increase it above that level. (Because the majority of all Utah income is earned by the top quintile of taxpayers, and because the Utah income tax more closely matches Utah’s income distribution than any other tax, most of such an income tax rate increase would be paid by the top-earning 20% of Utahns, while most lower-income Utahns are shielded from income tax rate increases.) 
  5. Disclose and evaluate the effectiveness of tax expenditures (revenue lost to the taxing system because of tax deductions, exemptions, credits, and exclusions); Utah’s lack of transparency in this area of taxation earned us a C grade from the Volcker Alliance, a leading evaluator of state budgetary practices founded by former Federal Reserve chairman Paul Volcker. 

 

2)     For decades, Utah’s overall level of taxation relative to the state’s economy has been dropping, as illustrated in the chart below from the Utah State Tax Commission:

USTC Tax Burden chart

The unfortunate result is that we are left with a tax structure that fails to generate sufficient revenues to allow our state and local governmental entities to properly meet their responsibilities and fulfill their appropriate role in a number of critical areas, including the following:

  1. Education: Utah ranks last nationally for our per-pupil investment in K-12 education. Particular areas of weakness include:
    •  · Teacher turnover rates are higher than the national average. One study found the majority of new teachers leave within seven years.
    •  · Pre-K: Utah ranks 36th for our percent of lower-income 3- and 4-year-olds attending pre-school, private or public. We are also 1 of only 7 states not to have statewide public preschool programs. (The state offers only small-scale programs in a limited number of local school districts.) Yet we know from multiple research sources that every dollar invested in high-quality day care and preschools produces at least a $7 return on that investment in future years. 
    •  · Kindergarten: Only a third of Utah kids participate in full-day kindergarten, less than half the national average, because local school districts can’t afford to offer it. Voices for Utah Children estimates that it would cost at least $75 million to offer full-day K to all Utah kids (not including potential capital costs). 
    •  · According to the January 2019 report of the Utah Afterschool Network, the need for after-school programs exceeds the supply many times over, leaving tens of thousands of children completely unsupervised, meaning they are less likely to do their homework and more likely to engage in unsafe activities.

In addition to these input measures, Utah is also lagging behind in terms of several significant educational outcome measures:

    •  · Our high school graduation rates are lower than national averages for nearly every racial and ethnic category, including our two largest, Whites and Latinos.
    •  · Among Millennials (ages 25-34), our percent of college graduates (BA/BS or higher) lags behind national trends overall and among women.

Moreover, Utah is in the midst of a demographic transformation that is enriching our state immeasurably but also resulting in majority-minority gaps at a scale that is unprecedented in our history. For example, in our education system:

    •  · Our gap between White and Latino high school graduation rates is larger than the national gap. 
    •  · Education Week recently reported that Utah ranks in the worst 10 states for our growing educational achievement gap between haves and have-nots.
    •  · We are beginning to see concentrations of minority poverty that threaten to give rise to the type of segregation and socio-economic isolation that are common in other parts of the country but that Utah has largely avoided until now.

B. Infrastructure: Utah’s investment has fallen behind by billions of dollars. This is another area where the Volcker Alliance ranked Utah in the worst nine states for failing to track and disclose to the public the dollar value of deferred infrastructure replacement costs. In addition. Internet infrastructure is lacking in some rural counties, limiting their integration into Utah’s fast-growing economy.

C. Mental Health and Drug Treatment: Utah was recently ranked last in the nation for our inability to meet the mental health needs of our communities, according to a recent report from the Kem C. Gardner Policy Institute. Underfunding of drug treatment and mental health services costs taxpayers more in the long run as prison recidivism rates rise because the needed services are not available. Estimates are that Utah meets only 15% of the need for these vital, life-saving services. 

 D. Affordable housing units fall 41,266 units short of meeting the need for the 64,797 households earning less than $24,600, yet the annual $2.2 million state allocation to the Olene Walker Housing Loan Fund has not changed in over two decades, despite inflation of over 60%. Among extremely low-income renter households, 71% pay more than 50% of their income for housing, which is considered a severe housing burden. This year, the Olene Walker Housing Loan Fund used up most of its annual $14 million budget at its very first meeting of the fiscal year (made up of both state and federal funds). 

E. Health care: Our rates of uninsured children are higher than national averages – and rising – especially among the one-in-six of our children who are Latino. In Utah 35,000 or 5% of White children are uninsured (national rank = 36th place), compared to 31,000 or 18% of Latino children (rank = 46th = last place in 2017). 

 F. Disability services: The 2018 annual report from the Utah Department of Human Services’ Division of Services for People with Disabilities reports that the wait list for disability services grew to a record level of 3,000 individuals last year and that the average time on the wait list is 5.7 years. 

 G. Seniors: The official poverty measure undercounts senior poverty because it does not consider the impact of out-of-pocket medical expenses. A 2018 study found that seniors spent $5,503 per person on out-of-pocket medical expenses in 2013, making up 41% of their Social Security income. (For most seniors, Social Security is the majority of their income, and it makes up 90% or more of income for 21% of married couples and about 45% of unmarried seniors.)  

 H. Domestic Violence: Although Utah's overall homicide rate is significantly lower than the national average, domestic-violence-related homicides constitute over 40% of Utah's adult homicides compared to 30% nationally. Several thousand women continue to be turned away annually from crisis shelters because of lack of capacity. Additional state funding would make it possible to substantially increase the capacity of overburdened crisis shelters. We are one of the few states without domestic violence services in every county.

Given the large number of urgent needs that are not being met because of our chronic shortage of public revenues, we are concerned that Utah is missing the opportunity to make critically important upfront investments now that would allow us to reap substantial rewards in the future, and that our most vulnerable neighbors will pay the greatest price as a result.

Thus, we urge you to consider the ways that the state tax structure impacts single parents, disabled adults, low-income children, seniors on fixed incomes, and other vulnerable population groups as you decide on your tax restructuring and equalization proposals.

 Finally, thank you for all the time and effort you are personally investing as volunteer members of this important Task Force, and for all that you do for our state through this and other forms of public service. 

Yours truly,   

American Academy of Pediatrics Utah Chap.

Catholic Diocese of Salt Lake City

Coalition of Religious Communities

Community Action Program of Utah

Community Development Finance Alliance

Community Rebuild

Comunidades Unidas

Crossroads Urban Center

Epicenter

First Step House

League of Women Voters Utah

Legislative Coalition for People with Disabilities

ICAST

Habitat for Humanity of Southwest Utah

Moab Area Hsg Task Force

Provo Housing Authority

RESULTS Utah

Rocky Mountain CRC

Self-Help Homes, Provo, UT

Utah Citizens’ Counsel

Utah Coalition of Manufactured Homeowners

Utah Community Action

Utah Food Bank

Utah Housing Coalition

Utahns Against Hunger

Voices for Utah Children

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