Gov. Jon Huntsman Jr. says that if the 5 percent tax were phased out, Utah businesses would find it easier to thrive and the state would attract new corporations to locate here. The result would be more jobs and, eventually, more state revenues.
House Bill 78, sponsored by Rep. Wayne A. Harper, R-West Jordan, would have phased the tax out over five years, beginning in 2008. By the last year of the phase-out, the loss to the school fund was expected to be as much as $200 million.
The governor argued that that was not a problem, because this would be just a first step in a larger tax reform plan, and by the time the phase-out was scheduled to begin, other tax measures would make up the lost revenue.
But that's small comfort to people who wondered how the state's financially beleaguered school system would carry on if the corporate income tax were repealed and no steps were taken to replace the lost revenue.
And that's really the problem with the governor's proposal. It's not a comprehensive plan. The House exercised good judgment Monday in gutting it.
Former Gov. Olene Walker's plan to reform Utah's tax structure also recommended that the corporate income tax be repealed. But that suggestion was part of a wide-ranging, comprehensive blueprint that, at least initially, would raise the same amount of revenues as the current structure.
The Walker plan proposed that if the corporate income tax were eliminated, the lost revenue would be made up by adjusting the statewide property tax levy for the schools.
The Walker plan also noted that it might be difficult for officials to eliminate the corporate income tax because it is such a significant source of revenue. But if the tax were retained, the Walker plan suggested a technical change.
That change would give double weight to the sales factor that occurs in the tax formula that apportions business income. The Harper bill included this provision. However, Rep. James A. Dunnigan, R-Taylorsville, proposed a substitute version of HB 78 Monday that retained only the reform of the sales factor, but did not include the five-year phase-out of the corporate tax itself.
Essentially, the House has said that the corporate income tax should not be killed unless there is a plan to make up that revenue to the schools. We agree. Taking any other approach is wishful thinking, not tax policy.
