State expects $420M surplus

Utah state government tax collections are still growing strong, with an estimated $420 million surplus by the end of the current fiscal year, June 30, a new analysis for the Deseret Morning News shows.

Based on monthly tax collections reported by the State Tax Commission, former commission chief economist Doug Macdonald compiled a forecast that shows record tax growth will hold during the rest of this fiscal year.

But there are a few economic concerns, Macdonald pointed out.

"We were figuring a $450 million tax surplus for fiscal 2007" earlier this year, said Macdonald. "Now it is closer to $420 million. Less, but still a record and very healthy growth."

Macdonald, who is now executive director of Utah Issues, a nonprofit advocate group for low-income Utahns, noted that his previous estimate of a $450 million surplus this fiscal year — also made for the newspaper — has been reduced mainly because of extra large personal income tax refunds this year and sales tax refunds.

In the 2007 Legislature, lawmakers and Gov. Jon Huntsman Jr. agreed to a $220 million tax cut — mostly coming in state personal income and sales tax reductions — to take effect Jan. 1, 2008.

Since those tax cuts are outside of the fiscal year 2007, they don't affect the $420 million surplus now accruing.

A 2 percentage point reduction in the state sales tax on food, given in the 2006 Legislature, did take effect Jan. 1, 2007. That tax cut is one reason the latest TC23 report shows only a 1.8 percent sales tax revenue growth rate.

But a 7.9 percent growth rate in the personal income tax and a whopping 23.6 percent increase in the corporate income tax is one reason the state is so tax-rich.

Macdonald has been critical of how the Legislative Fiscal Analyst — the Legislature's professional budget arm — has been calculating the cost of various tax cuts — especially business tax cuts desired by GOP legislative conservatives.

"The fiscal notes (how much the tax cut will cost state government) on various business tax bills were low-balled" by the Legislature's own economists, said Macdonald. "They've been low-balling fiscal notes in a number of areas" for a couple of years.

If he is correct, when the tax cuts finally do take effect, the state will lose more money than originally estimated.

However, assuming Utah's red-hot economy continues, the state will still take in hundreds of millions of dollars more than budgets call for, and so lawmakers will be just fine in their budget-setting process.