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SALT LAKE CITY — Utah Gov. Spencer Cox told low-tax advocates on Tuesday that he wants the state Legislature to shake up its approach to tax relief.
Cox has often touted the $1.2 billion in tax cuts he signed into law during his first four years in office. But Cox wants the Legislature to focus on more targeted tax relief this year and a more comprehensive plan to completely eliminate the income tax in years to come.
Cox's 'gift' to the Legislature
A "cornerstone" of Cox's $30.6 billion budget for the upcoming legislative session is the removal of the state tax on Social Security payments. On Tuesday, Cox pressured lawmakers in attendance at the Utah Taxpayers Association Conference to accept his proposal.
"I can assure you, I handed you a gift this year," Cox said. "This is, I would say, easily the most popular proposal that I've made in the past four years."
The state created a Social Security tax credit in 2021 and expanded it in 2022 and 2023, but the tax break stops at $45,000 in income for single filers and $75,000 for joint filers.
Cox said that removing the remaining state income tax on Social Security benefits, which will cost an estimated $143.8 million in ongoing funds, will have a much more tangible benefit for the 150,000 retired Utahns who would be affected than continuing to incrementally cut the income tax rate for everyone.
"What's interesting about this one is it's one of those rare policy proposals where people who don't get any benefit right now are also very excited and and supporting it," Cox said, adding jokingly, "I lament what will happen to you if you don't do it. So good luck with that."
Senate Budget Chairman Jerry Stevenson, R-Layton, previously told the Deseret News that he sees momentum in favor of the governor's tax cut and expects it to pass.
House Budget Chairman Val Peterson, R-Orem, was more hesitant to predict the demise of taxes on Social Security. The Legislature usually tries to prioritize tax policy that impacts all Utahns equally, Peterson said.
"What you want to do in tax policy is you want to have it equal across the population, so that it's not a huge burden upon any one group of people," Peterson said. "We've been trying to make progress, to make sure we have everybody benefiting a little bit from some of the tax cuts that we've been doing."
How much has Utah cut the income tax?
The Utah Legislature reduced the state income tax on individuals from 4.95% to 4.85% in 2022, then from 4.85% to 4.65% in 2023, and from 4.65% to 4.55% in 2024.
These cuts represent what Cox has called the largest cumulative tax cut in state history. The last time Utahns saw such large tax cuts was when former Gov. Jon Huntsman signed into law a new flat income tax rate of 5%, paired with several other tax cuts, totaling hundreds of millions of dollars in 2006 and 2007.
Utah Senate President Stuart Adams, R-Layton, has said his goal is to do away with the state's tax on individual income entirely, joining the ranks of business friendly states like Florida and Texas that don't tax income.
On Tuesday, Cox called Utah's current incremental approach to decrease the income tax, without a plan to completely eradicate it, "a mistake."
"We've got to get really serious about what our tax code looks like moving forward," Cox said on Tuesday. "I feel like we're kind of kind of piecemealing it along. And I don't think that's a great way to do things."
Cox said he would support the eventual elimination of income tax, but in the meantime, the state needs a more forward-looking framework for cutting taxes instead of figuring it out on a year-to-year basis.
This year, with $165 million in ongoing revenues set aside for tax cuts, lawmakers are eying another income tax reduction of a few tenths of a percentage point.
Senate Revenue and Taxation Chairman Dan McCay, R-Riverton, said he will introduce a bill to reduce the income tax this session, which could potentially be paired with the Social Security tax cut, according to Peterson.
What would eliminating the income tax do?
If the state wants to completely eliminate the income tax, then lawmakers will have to have difficult discussions about where to make up for that lost revenue. This would mean a complete reworking of state tax code and could potentially look like a tripling of property taxes for Utahns, Cox said.
In fiscal year 2020, over 25% of all state and local tax collections in Utah came from individual income tax, 27% came from property tax and 30% from sales tax, according to a Tax Foundation report.
States like Texas, which does not have an income tax, must rely significantly more on property taxes, which make up nearly 50% of state and local revenues.
This has led to Texas having some of the highest property tax rates in the country, with property tax collections per capita hitting $2,200 compared to $1,220 in Utah.
If this is the direction Utah wants to go, Cox said there needs to be a broader conversation about the tax code this session beyond the now-typical income tax cut of a couple basis points.
"My vision is, let's actually do it. Let's figure out what we want the end game to be. And nobody's been able to articulate that to me yet," Cox said.
However, the state's incremental approach to income tax cuts reflects why it is considered one of the best managed states in the nation, according to Peterson.
Government revenues and spending can be fluid, Peterson said, so a cautious approach must be taken to ensure tax reforms don't lead to any deficit spending.
"You want to do it in a measured, consistent manner," Peterson said. "Tax code is something that we want to make sure we're careful about that we don't leave state government unfunded."
