Tax Policy and Restraining the Size of State Government

Restraining the size of state government requires restricting its access to revenue.  Governments tend to consume whatever revenue is in front of them.  The best way to keep state government from growing faster than a state economy is to constrain access to revenue.  Many states are effectively controlling the cost of government operations.  Most states and the federal government are struggling to restrict growth of social programs.

The Utah House of Representatives voted to eliminate the sales tax on food subject to voters choosing to removing the constitutional earmark that historically reserved income tax funds for spending on education.  I was one of a few who opposed the bill.  Following are the reasons why:

Eliminating the Sales Tax on Food is Less Effective than Reducing Income Taxes
While I am for reducing taxes wherever we can, there is a large surplus in the income tax fund and better policy would have been to reduce income taxes further than the legislature has proposed this session.  The current income tax reduction proposal will reduce the rate from 4.85% to 4.65%.  This reduction is estimated to be $380 million in ongoing tax relief.  Applying the $200mm sales tax on food reduction to income tax relief would get Utah very close to a 4.5% income tax rate. We are going to have to find ways to keep reducing income tax when Nevada and Wyoming are at 0%, Arizona is at 2.5% and Colorado is at 4.4%.  Eliminating sales tax on food also impacts local cities and counties who rely on sales tax as a part of their budget.

Utah Can Continue to Successfully Balance Its Budget
One of the most common arguments for removing the constitutional earmark is the need for budget flexibility.  This refrain is not new.  In 2019 we were told that if we didn't increase sales tax revenue then the state would not be able to balance its budget.  We were also told that in time of recession the sales tax was too volatile.  Looking back at the 2020 recession, both assertions were incorrect. Sales tax proved more stable, income tax proved to be more volatile, and Utah successfully balanced its budget.

Utah is Considered the Best Managed State
Our state has lead on nearly every metric of state fiscal responsibility.  On removing the earmark, we are not leading. We are following many other states who have not managed their state as effectively as Utah has.  Our success is due to good leadership, but it is also do to balanced budget requirements and restrictions on the general fund.

Social Services Spending Growth is Unsustainable
Medicaid, Medicare, Social Security, and related programs in the United States Federal Budget are the largest budget line item and are growing faster than the economy.  Because there are no constraints to contain expenditures and because we all genuinely want to help children, the disabled, and the elderly, our deficits are over $1 trillion annually and growing.  In Utah, social services is the largest line item at approximately $8.5 billion and one of the fastest growing.  Historically, our social services spending has been constrained by the resources available in the general fund.  Utah weakened the constraint when we amended the constitution to include spending on children and the disabled, but this final step removes any remaining constraints the earmark might have had on social services spending.

Summary
It is very difficult to constrain spending in government.  The most effective constraints on spending are those that limit resources.  The constitutional earmark limited the growth of the largest, fastest growing portion of government.  If the citizens vote to approve the constitutional amendment, it will be up to the legislature and the citizens to do the hard work the earmark has done for us over many decades contributing to Utah's status as the best managed state.