Utah Tax Ballot Measure: Education Funding
The tax system in Utah is unusually targeted. The entire amount of individual and
corporate tax. A corporate income tax is imposed by the federal and state governments. Many companies are exempt from the CIT, as they are taxed under the individual income taxes.
Sales tax is a tax levied by retailers on the retail sale of goods and services. It should, in theory, apply to all final consumption, with few exceptions. Many governments exempt items like groceries. Broadening the base, such as adding groceries, would allow rates to be lower. A sales tax should exclude business-to-business transfers that, when taxed cause tax pyramiding.
revenue is currently earmarked as well, for priorities ranging from transportation to water and natural resources.Utah is the only state to earmark the entirety of one of its major taxes (Alabama is the only other state that comes close, earmarking most of its income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
). However, a measure that will be on the ballot in November could change this. It would also trigger prior contingent legislation exempting groceries from the state sales tax. By dedicating the income taxes to education along with other more common dedications (like using the
gastaxA gas tax is a term used to describe a variety of taxes levied at both the federal level and the state level on gasoline), funds can be provided for highway repair and upkeep, as well as other government infrastructure projects. Gas taxes are levied on a variety of levels, including per gallon excise tax, wholesaler excise tax, and general sales tax that applies to the purchase gasoline.
While income taxes continue to grow at a robust rate, which has led to several rate reductions in recent years, returning some of that growth to taxpayers, sales tax revenues are declining as a share of state tax collections. Unfortunately, while income taxes continue to show robust revenue growth–which has led to several rate reductions in recent years, returning some of that growth to taxpayers–sales tax revenues are declining as a share of state tax collections.Four decades ago, income tax collections accounted for 2.2 percent of state income while sales taxes brought in the equivalent of 2.5 percent of state income, all of it unearmarked. Income taxes now generate 3.5 per cent of state income, despite several rounds of rate reductions. Sales tax revenue is 2.1 per cent, and the unearmarked portion is only 1.5 percent. The income tax earmark was enshrined into the constitution when the tax mix was radically different. It is now unbalanced, and makes it hard for legislators budget. The Utah Constitutional Requirements for Education Funding Amendment is a legislatively referred change that adds the phrase “to support other needs of the state after the fulfillment of Subsection (5)(b), which requires support for higher and public education” as a valid way to use income tax revenues. The provision does not define school funding requirements, though this is not unusual: specific school funding requirements throughout the country are statutory or court-driven, rather than detailed in state constitutions.Ratification of the amendment would also trigger a contingent provision of House Bill 54 (2023), repealing the state’s sales tax on groceries. Local sales taxes will continue to apply to groceries, and, as in all states that have sales taxes, prepared foods will remain in the sales
taxbaseThe tax base is the amount of income, property or assets, consumption, transactions or other economic activities that are subject to taxation. A narrow tax base can be inefficient and non-neutral. A broad tax base allows for lower tax rates and reduced administration costs.
.Eliminating the tax on groceries is unquestionably a tax cut, albeit a poorly targeted one. When policymakers cut taxes, they tend to focus either on promoting economic development, achieving certain distributive goals, or both. Removing groceries as a tax deduction from the state’s sales tax base will reduce revenues in a manner that is unlikely promote economic growth. That may be fine, from policymakers’ point of view, if it achieves some other outcome, and indeed, the general argument for exempting groceries from the sales tax base is to provide targeted relief to low-income households, making the tax code more progressive.
However, as we and others have previously demonstrated, the grocery exemption is poorly calibrated for this. Low-income households make many grocery purchases with SNAP benefits. These purchases are exempt from sales taxes (a requirement of the federal government). These households will also benefit from the new exemption for non-exempt purchases, but they would be better off with a reduction in the sales tax rate. The fact that groceries are a major part of the consumption of low-income families, but that many of them are already exempt from tax means that relief for grocery taxes is less beneficial than a general rate reduction. The effects of the amendment, therefore, are mixed. But should the amendment pass, Utah’s path to balancing the budget would become significantly easier, and funding for education and other priorities could be based on calculations and formulas rather than on the amount of revenue flowing each year from a single, volatile tax.
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