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It didn't take long for Gov. Gary Herbert's budget to run into trouble in the Legislature.

House Republicans voted Monday to oppose one of the governor's key tax proposals, saying it was a tax hike for small businesses, essentially blowing a $130 million hole in the budget Herbert unveiled Friday.

Instead, GOP members in the House will look to cut another 7 percent — more than $300 million — from a state government that has already been slashed by more than $1 billion in recent years. Senate Republicans meeting in their own caucus Tuesday agreed to support the same approach as their House counterparts.

At the heart of the disagreement with the governor is his proposal to require self-employed businesspeople to pay their taxes quarterly instead of annually. That would move up tax collections by several months and create a one-time windfall of about $130 million.

"Our caucus sees that as a tax increase and we took a position against any tax increase," House Speaker-elect Becky Lockhart, R-Provo, said Monday after an all-day closed door Republican Caucus. "Especially in these economic times, you don't want to do anything that would hamper [businesses'] ability to grow."

Senate President Michael Waddoups, R-Taylorsville, said his caucus also takes issue with the governor's proposal.

"Obviously there was a lot of discontent with it," Waddoups said. He added that Senate Republicans weighed using Rainy Day Funds or cutting budgets. "We decided to start out with the cuts and use Rainy Day Funds last."

That leaves the governor and Republicans in the Legislature in very different positions heading into the legislative session.

The budget Herbert laid out Friday proposed spending $50 million in new funding for schools and used the quarterly filings to help avoid having to make further cuts to government programs.

The House Republicans, however, have no reservations about making cuts.

"My opinion would be to cut existing nonessential programs and services," said Rep. Craig Frank, R-Cedar Hills, a key House conservative.

Lockhart said a top priority for the caucus is to do something about $313 million in continuing programs being paid for with funds that will be used up at the end of the fiscal year.

So, legislators will look to cut programs by 7 percent, said House Majority Whip Greg Hughes, R-Draper. If there are critical areas, he said, they may dip into the Rainy Day Fund at that point.

Lockhart said the House has not made any decision on whether to pay for the 14,700 additional students expected to enroll in public schools next year.

"The governor respects the caucus position, but also understands it is early in the budget process," said Herbert's spokeswoman, Angie Welling. "He continues to believe that quarterly estimated payments are the best policy position for the state."

It is clear that, by taking the quarterly payments off the table, the House Republicans have assured they will craft a more austere, bare-bones budget than the governor presented.

Under Herbert's tax proposal, the amount of tax that self-employed businesses would pay wouldn't change. But instead of paying the tax bill in one lump sum annually, estimated payments would be made four times during the course of the year.

Herbert defended his proposal Friday, saying Utah is one of only two states — Idaho being the other — that don't require quarterly filings. The federal government also requires those taxes to be filed quarterly.

He said quarterly payments help the state get a clearer revenue picture and it is a good business practice, as well.

"As a small-businessman myself who has been subject to quarterly estimated payments, making the payments in somewhat of a timely fashion every quarter is better than having to dig up $2,000 at the end of the year," he said. "And if you don't have it, what do you have to do? You have to borrow it, which adds to your business fragility."

Frank disagreed.

"Having been a small-business owner myself, that creates less options for cash flow at certain critical times," he said.

House Majority Leader-elect Brad Dee, R-Ogden, said there won't be a problem reconciling the numbers, but the quarterly tax payments are one area where lawmakers don't see eye-to-eye with the governor. —

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