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Gehrke: Rush to reform taxes has lawmakers hurtling toward bad policy

First Published      Last Updated Mar 21 2017 09:21 pm

With the 2017 Legislature thundering down the homestretch, Republican leaders are scrambling to cobble together a sweeping tax plan they can get to Gov. Gary Herbert's desk under the wire.

The talk of major tax reform is relatively new — there was no real discussion of it in the various meetings held since last session.

And there doesn't seem to be a pressing need, since the new budget numbers released last week showed better-than-expected revenue for the state.

The driver seems to be lawmakers wanting to demonstrate that they are doing something in response to the push by the Our Schools Now initiative, an effort by prominent business leaders frustrated with education being constantly neglected, that would ask voters to raise their income taxes to pump $750 million a year into public education.




But in their haste to respond, lawmakers risk harming average Utahns without solving the problems the state is encountering.

As it stands right now, the tax reform leaders are looking at would consist of:

• More than doubling Utah's state sales tax on food, reinstating a decade-old decision to cut the sales tax on food to 1.75 percent. That would be balanced out by reducing the overall sales tax rate on other purchases.

• Phasing out personal tax credits — basically the state equivalent of the individual tax deduction — for people making more than $100,000 a year and offsetting it by lowering the overall income tax rate.

• Tinkering with the 2015 gas tax hike, by arranging it so the indexing of the gas tax rate is fixed to a lower price for gas, basically making sure the automatic gas tax increases envisioned in the bill kick in sooner.

• Setting a floor on property taxes, which mean that, as housing prices increase, the property tax rate wouldn't automatically go down. That would mean that, as your home value goes up, your property taxes likely would, as well.

Senate President Wayne Neiderhauser said Tuesday that there could be a more fully formed tax plan by the end of the week — they didn't like how their first crack at the proposal would impact certain groups.

There are, however, more fundamental problems as lawmakers rush to pull together such a comprehensive plan in the waning days of the legislative session:

1. The sales tax on food hurts the poor.

It's a familiar refrain, but statistics bear it out: Utah's poor are disproportionately harmed by the highly regressive sales tax on food. It was one of the leading reasons for reducing it in the first place.

According to figures from the Institute on Taxation and Economic Policy, about a quarter of the estimated $200 million that would be generated by restoring the full sales tax on food would be paid by households making less than $43,000 a year.

Utah is one of just 13 states that levy ANY statewide tax on food purchases. If it imposes the full sales tax on food it would join just seven other states.

The argument in favor of restoring the full sales tax on food is that it's very stable, which is kind of a no-brainer, because even when the economy is down, people have to eat.

It's like taxing air — which would be a pretty raw deal given the quality of Utah's air.

And who benefits from the overall sales tax cut? Pretty simple, the people who buy the boats and cars and expensive items. That's not typically households making less than $43,000 a year.

2. The tax plan doesn't fundamentally address the state's serious budget problems, particularly when it comes to education funding.

Neiderhauser has acknowledged that one of the motivations for lawmakers to look at Utah's tax structure is that prominent business leaders are putting together a ballot initiative that would increase Utah's income tax from 5 percent to 5 7/8 percent to generate an additional $750 million a year for education.

In case you hadn't heard, Utah spends less on education per pupil than any other state.

But by trying to make any changes to the income and sales tax structure revenue neutral, that means there will be precisely zero new dollars for education. It remains to be seen if, and how much, might come in from the change to property valuations.

3. Promises of huge new growth are purely speculative.

Legislative leaders say over and over that they oppose the Our Schools Now initiative because such a big tax increase could hamper economic development. Conversely, they say cutting the tax rates would stimulate new jobs.

It hasn't exactly borne out that way. In fact, Utah's gross domestic product grew faster the five years leading up to the Huntsman tax cuts than it did in the last five years since the economy came out of the recession.

It's also worth noting that, looking around the country at states that are seeing faster growth than Utah, several of them — namely Colorado, California and Oregon — have higher tax burdens, according to the nonpartisan Tax Foundation.

There simply is no evidence that Utah's current tax structure is hampering economic development, nor that fiddling with the dials on the Tax Machine will significantly improve the economy which, we are already told, is the envy of the nation.

4. Like the food tax, a gas tax increase takes a disproportionate amount of money out of the pockets of the working class. That's because those families have to spend a larger percentage of their monthly income on the essentials, like food and gas.

All of these are fundamental problems with the direction that lawmakers are heading with tax reform and, in their haste to do something now, they risk doing the wrong thing.

gehrke@sltrib.com

Twitter: @RobertGehrke

 

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