After months of talk, Republican lawmakers will meet Thursday evening to rewrite Utah’s tax code.
Reform is needed and, to give credit where it is due, the legislative task force that gave up a good chunk of its summer working on the bill developed some good proposals.
The low-income tax credit, the removal of an earmark for roads, the elimination of some tax exemptions, the removal of the tax on feminine hygiene products and the taxation of some new services are all positive steps.
Unfortunately, the bill has one big failure — it doesn’t really address the problems lawmakers set out to solve.
It will do long-term harm to public education; it will likely hurt some low-income families by raising the sales tax on food; it inadequately addresses sales taxes on services, leaving out industries with high-priced lobbyists and instead targeting landscapers, Lyft drivers — even streaming services and dating apps (both ends of “Netflix and chill” as resident Steve Hiatt put it at a recent hearing).
The legislation needs more work, but it won’t get it because legislative leaders are intent on passing what is, on the whole, a deficient bill produced by a flawed process — and here’s three reasons why.
We don’t need a special session.
In calling the session, Gov. Gary Herbert noted that sales tax revenues haven’t been keeping pace with growth since Gov. Olene Walker’s administration — which is true. Everyone knew it for the past 16 years and blew it off, banking on the overhyped promise of collecting tax from online sales.
The issue needs to be addressed, but it isn’t a crisis — at least not yet.
So, how did we get here? Arm-twisting.
I’ve talked to about a dozen people on the Hill who said Republican leaders leaned on them hard to support the tax bill. Even those without much at stake in the tax bill — but who needed leaders’ support on other issues in the upcoming session — had little choice but to relent.
So at the final tax reform hearing this week you saw groups and industries come out of the woodwork, urging passage of the bill now, rather than waiting until next month.
The pressure, I believe, was strategic. That’s because the tax bill up for debate Thursday is one piece of a larger overall reform effort. A constitutional amendment to remove the dedicated revenue for schools and a change to property taxes that will likely mean annual increases are still being discussed.
Both are unpopular and bundling them together could have sunk the entire tax reform effort, so they’re going to take them on one at a time.
Passing the broad tax bill Thursday gives the Legislature leverage going forward. If education interests manage to defeat the constitutional amendment or the property tax piece, fine. Schools take a cut with nothing to take its place. This forces them to bargain or suffer the consequences.
Tax reform will be bad for education.
Legislators love to claim that, under the tax reform plan, education will be “held harmless” — a meaningless term.
Yes. More money will be spent on education next year than this year. But this bill pinches off the funds earmarked for schools and will slow the growth of education spending.
It’s fine, legislators claim, because they plan to start using sales tax dollars to pay for colleges and universities, leaving the income tax to public schools, protecting them from cuts. But it won’t work.
That’s because the bill cuts education funding by $635 million and replaces it with $534 million for higher ed — a $101 million reduction to schools. On top of that, they’re taking away another $58 million in liquor taxes that now pay for the school lunch program.
And that $534 million for higher ed won’t last. At the last task force meeting, the Legislature’s fiscal analyst acknowledged it was only a one-year guarantee. After that, it becomes a slush fund legislators can use whenever the sales tax revenues (which, as you recall, haven’t kept up with growth since the Walker administration) continue to lag.
Why do I think they would do that? Because, for more than 20 years, they have.
Until 1996, higher ed was funded entirely by sales tax. That year, voters approved a constitutional amendment to shift it to income taxes. Pretty much every year since then, lawmakers have taken millions from the sales tax that had paid for higher ed and used it to cover roads and prisons and social services.
Now the slush fund is nearly empty, so they’re basically making a new deposit into the account so they can go back to the same old shell game.
Everyone hates tax reform.
OK, not everyone. However, a handful of legislators I’ve talked to tell me their constituents don’t like this tax bill. Maybe it’s because it has the word “tax” in it — “gonorrhea reform” probably wouldn’t poll well, either — but it also points to a failure of lawmakers to explain to the public why reform is needed.
All of the Republican gubernatorial candidates oppose reform, primarily because of the sales tax on food.
Rep. Norm Thurston recently posted results on Facebook of a constituent survey he did (obviously not scientific) and results were about 2-1 against. Rep. Suzanne Harrison’s results, in a Democratic district, were similar. Rep. Ray Ward’s district was about 60% opposed. Others are in the same boat.
Gov. Gary Herbert’s office has received roughly 700 public comments from constituents, all of them opposed to tax reform — either the bill itself, a special session or both.
It shouldn’t come as a surprise. Lawmakers were quick to upend public sentiment on Medicaid expansion and rewrite medical marijuana initiatives — and now taxes. But legislators who support this bill do so at a considerable political risk and there’s a good chance it will cost a few their seats.
Given the shortcomings in the bill, more probably deserve that fate.