Gov. Gary Herbert proposes dramatic cut to Utah’s sales tax rate during annual State of the State address

(Trent Nelson | The Salt Lake Tribune) Governor Gary Herbert delivers his State of the State address at the Utah Capitol in Salt Lake City on Wednesday Jan. 30, 2019.

Utah Gov. Gary Herbert told lawmakers to “slash” the state sales tax rate on Wednesday and proposed a 1.75 percent tax — down from 4.85 percent — be applied to a broader pool of financial transactions.

Adding more specificity to his previous calls for tax reform, Herbert urged legislators to focus on the big picture rather than taking “the easier road of procrastination.”

“Developing a more equitable, simple and sustainable tax system will be our number one priority this session,” Herbert said.

That equitable system, Herbert said, must include taxing services as well as traditional sales. He gave the example of buggy whips, which are taxed, and ride-sharing services like Lyft and Uber, which are exempt. But beyond that example, Herbert did not specify what currently exempt services should be included under the state’s sales tax, only stating that the product-dependent status quo is “patently unfair” and “absolutely unsustainable.”

“All the goods and services that benefit from our business-friendly, well-managed state should contribute to our tax base,” he said.

Herbert’s comments came during his tenth annual State of the State addresses to Utah lawmakers. He may give just one more after indicating he does not intend to run for re-election. Legislative leaders have similarly spoken of the need to address Utah’s shrinking sales tax base by taxing services in addition to traditional purchases.

In his opening remarks at Monday’s launch of the 2019 session, House Speaker Brad Wilson, R-Kaysville, proposed a combined tax cut of $225 million, $25 million higher than what Herbert had earlier suggested. But on Wednesday, Herbert matched Wilson’s number, citing an estimated $1 billion surplus in state coffers this year.

“This surplus is not here by accident,” Herbert said. “It has come from the hard work of the millions of Utahns whom we serve. It has come because of the decisions of past legislators and governors to spend taxpayer dollars prudently and manage them wisely.”

The address comes after a busy three days of the 2019 legislative session, during which the Senate has acted swiftly to begin replacing a voter-approved Medicaid expansion initiative with a more restrictive — and initially more costly — program of their own design.

While Herbert mentioned Proposition 3 during his address, he did not articulate whether he approves of the Senate plan, which has been described as a “repeal” of the full Medicaid expansion endorsed by 53 percent of voters during the November election.

“The much-needed Medicaid expansion passed by the voters needs to be implemented in a fiscally sustainable way,” Herbert said. “And with some common-sense adjustments, I know that we can implement this program without delay.”

Lawmakers already replaced one successful ballot initiative — Proposition 2 — during a special legislative session in December. And on Wednesday, the Senate gave preliminary approval to replacing Proposition 3 on a near party-line vote.

In a pre-recorded response to the State of the State, House Minority Leader Brian King, D-Salt Lake City, said it is sad that so many Utah lawmakers are ignoring the voice of the people.

“My Democratic colleagues and I are listening to you,” King said. “That’s because you elected us. The Legislature should never be quick to overrule the will of Utah voters when ballot initiatives pass.”

Herbert in his speech also listed his priorities for education this year, calling for a 4 percent increase in per-student spending, $30 million for counseling and mental-health services in schools and $100 million for facility upgrades, including school-safety improvement.

The governor also said he is “disturbed” by the younger generation’s fascination with socialism, and suggested every student be taught the basics of free-market economics.

“What we see in Venezuela should remind us that tyranny and poverty follow economic systems where the state controls production,” Herbert said, “where bureaucrats allocate resources and where government picks the winners and the losers.”

Rep. Carol Spackman Moss, D-Holladay, said in her pre-recorded response to Herbert’s address that the state’s budget surplus — most of which falls within Utah’s Education Fund — should primarily be invested in schools rather than in tax cuts.

“We need to use this economic opportunity to better fund public education to have a healthier future for all Utahns,” the retired teacher said.

Herbert concluded his address by discussing the upcoming 150th anniversary of the transcontinental railroad on May 10. He remarked that society’s outcasts — including freed slaves, immigrants and exiled members of The Church of Jesus Christ of Latter-day Saints — were instrumental in constructing the rail lines that spanned the continent for the first time.

“We can and we should do more to protect the nameless, the outcasts and the vulnerable,” Herbert said. “Although we come from diverse backgrounds and experience, we can work side-by-side, sunup-to-sundown, with the spirit of cooperation to lay a foundation for our future prosperity.”