Huntsman's Proposed Tax Cut
Gov. Huntsman is proposing an ongoing individual income tax cut of $100 million starting in FY2008 as well as a one-time $50 million tax cut retroactive to FY2007. The income tax cut will be coupled with tax reform which we'll talk about tomorrow.
Is the tax cut too small, too big, or just right?
Some people, like the editors at the Provo Daily Herald, think any tax cut is too big and any tax hike is probably not big enough. Click here and here to see what we mean. These people will never be satisfied no matter how fast government grows and no matter how much funding government has in reserve. Consider the following facts about Huntsman's proposals for general/education fund expenditures:
- Huntsman's FY2008 budget is 15% higher than FY2007's pre-supplemental budget (14.5% if earmarked sales taxes are included).
- Huntsman's FY2007 budget including supplementals is 19.7% higher than FY2006's final budget (21.9% if earmarked sales taxes are included).
- FY2007 rainy day fund balance is expected to reach $275 million, an all-time high and about 129% higher than the rainy day fund balance of FY2001 (the year before the legislature drew down the rainy day fund to balance the budget during the recession).
- Huntsman's FY2008 budget includes $700 million in cash for roads and $200 million in cash for buildings.
- Huntsman is not proposing any new general obligation bonds. In fact, Huntsman's FY2008 budget projects debt service expenditures of $239.5 million, which is 12.7% less than debt service expenditures in FY2005.
Considering these facts as well as our high state/local tax and fee burden (click here to read our annual report on this issue), now is an ideal time for a substantial tax cut.
Some argue that state government isn't really growing even though state government is growing
Despite the proposed massive EF/GF increases, some argue that Huntsman's budget proposal isn't really growing government because a lot of the increase is being used for capital projects and the number of state employees isn't increasing.
First of all, the number of official state government employees may not be growing, but the number of school district employees -- mostly teachers -- is growing. While nearly everyone agrees that more teachers are needed to handle enrollment growth, these should still be counted as employment growth since state funds account for about 68% of school district operating costs and since K-12 education is the largest single item in the state budget.
Second, capital projects are still government expenditures, even if they are considered "one-time" expenditures on a year-to-year basis. Moreover, since Utah will be growing at significant rates for the foreseeable future, capital projects -- including transportation -- really aren't one-time expenditures from a long-term structural budget perspective since the state will have to continue to spend massive amounts of tax dollars on transportation for the next several decades.
How much will the tax cut be? The House Republican proposal of $300 million is the ceiling, and the Governor's proposal of $100 million is the floor. Senate Republicans have deferred their decision to January. Democrats have not publicly addressed the issue yet.