How the Utah Legislature’s tax proposal will assist the most vulnerable

Originally published in the Deseret News.

Approximately 9% of Utahns live in poverty. Many others struggle to meet basic subsistence needs. The reasons for their financial struggles vary, but all Utahns benefit when people live in a stable and healthy environment. The question is, what is the best way to help?

Vulnerable populations in Utah receive significant help from the federal government. Medicaid, the Supplemental Nutrition Assistance Program (today’s version of food stamps), the Women, Infants and Children nutrition program, and the Housing Choice Voucher Program, also known as “Section 8” vouchers, provide millions of dollars of support to Utah’s low-income population. There are other state and federal programs as well.

Wanting to do more Utah joined many other states in 2007 in charging a lower sales tax on unprepared food (groceries with many exceptions). Since it was too expensive to remove the entire food tax, legislators opted to drop the state rate on food from 4.75 percent to 1.75 percent. Today, state tax collections are approximately $250 million less each year because of this tax change. The benefit to low-income Utahns is approximately $30 million.

I support providing additional assistance to low-income Utahns but prefer a targeted approach. By removing the sales tax on food, Utah provided a tax break to all Utahns and visitors to our state. I prefer the more tailored and generous tax relief included in the current proposal by the legislative Tax Restructuring and Equalization Task Force.

The sales tax relief to low-income Utahns from the food tax comes at significant cost. Because the reduced rate is available to middle-income and high-income Utahns, state coffers give up $250 million annually, even though the policy objective is substantially less ($30 million).

Making matters worse, Utah’s sales tax base, which is already being upended by the shift from a goods economy to a service economy, has become less stable without the steady revenue from food purchases. Couple this increased volatility with an aging population that spends increasingly more money on health care, which isn’t taxed, and Utah’s Constitutional earmark of income taxes for education, and you have a serious structural imbalance and future revenue predicament.

The plan put forward by the legislative task force addresses these issues and more, all while providing a more generous benefit to low-income Utahns. Through a larger personal dependent exemption and a combination of tax credits for grocery purchases, Social Security income, and the working poor (Earned Income Tax Credit) the new bill provides $65 million in needed assistance to Utah’s most vulnerable population. That’s more than twice the $30 million benefit from a lower food tax for low-income individuals. By targeting tax policy, the Legislature can care more generously for those in need, address a significant source of volatility in the state revenues and improve a structural imbalance in the state budget. That’s a masterstroke in tax policy.

The challenge lies in ensuring that low-income Utahns file their tax returns. That’s no small task and will require legislative funding for public outreach and tax preparation. I take comfort in knowing the caliber of leadership at the Utah Department of Workforce Services and the Utah State Tax Commission, which will need to implement these changes.

I give the Utah Legislature’s Tax Restructuring and Equalization Task Force high marks for approaching their assignment with a policy focus and not forgetting Utah’s most vulnerable population. They have put forward tailor-made policies that provide a larger benefit to those with fixed incomes, lower incomes and economic struggles, all while creating a more stable, flexible and fair tax system.

I’m fond of the saying, “The time to fix the roof is while the sun is still shining.” Utah’s economy remains strong and provides a significant buffer to get these changes done. After an extensive period of study, eight public hearings throughout Utah, and skillful tax policy work, it’s time to reform Utah’s tax structure.