If Utah wants a more stable tax system while also preserving its image as a tax-friendly climate for business, it must avoid targeting business for new revenue, and shift tax burdens elsewhere.
As they scour the tax code for possible areas to cut or raise taxes, lawmakers are looking at higher taxes on vehicle fuel, food and possibly services, each carrying its own challenges.
What makes taxing services particularly difficult is that medical services make up more than half of the taxable transactions, Niederhauser said.
Niederhauser didn't unveil new proposals for tax reform as he spoke to the committee. He said the Legislature should look to the taxes that pay for Utah's roads, which Niederhauser said was a $600 million drain on the general fund as cars have become more efficient and gas tax revenues lag behind needs.
Lawmakers are scouring the tax code to look for ways to lower the income tax rate and eliminate certain exemptions and deductions for individuals.
"An income tax is a tax on productivity," Niederhauser said. "If you want more productivity, guess what we have to do, we lower it."
Sen. Jim Dabakis, D-Salt Lake City, suggested lawmakers raise the income tax on what he said were about 19,000 people making more than $500,000 a year, from the flat 5 percent tax to 7 percent.
"I suspect if we polled them a vast majority wouldn't say this is going to force them to move to Idaho," Dabakis said. "They would recognize the responsibility that they have, having done well."
While lawmakers considered raising the sales tax on food during the legislative session, Niederhauser said they'd discovered that charging the same 4.7 percent on food purchases already applied to general sales "isn't a big enough part of the tax revenue to make a huge difference in volatility."
Utah is one of six states that offer a reduced rate on grocery taxes. Thirty-two states don't tax most groceries and five states have no sales tax. Utah legislators were looking at joining seven other states that charge a full sales tax on food.
House leaders don't appear ready to move past the idea of raising the tax on groceries, which Utah lowered in 2007 to 1.75 percent. An additional 1.25 percent is collected by local governments, effectively putting Utah's tax on groceries at 3 percent.
Rep. Steve Eliason, R-Sandy, the committee's co-chairman, said lawmakers should look at a hybrid of keeping the discounted tax on staple foods while raising it on other food items.
"Many states limit their sales tax exemption [on food] to basic food staples," Eliason said.
Arthur Sutherland, of the Coalition of Religious Communities, spoke out against any effort to raise the tax on groceries because it would disproportionately burden poor people.