Two legislators leading the charge to overhaul the state’s tax system said their initial proposal will call for reinstating the full sales tax on food, a change that poverty advocates have decried as burdensome to the state’s lower-income residents.
But these lawmakers said their strategy will also feature tax relief so lower earners aren’t saddled with additional costs.
“I think the sales tax on food will be part of the equation, but it will also have tax credits for our most vulnerable,” said House Majority Leader Francis Gibson, who has spent the last few months as co-chairman of a tax reform task force with Sen. Lyle Hillyard.
The increased tax on food is just one likely component of what’s shaping up to be a multi-pronged tax package — one that Hillyard said would be ready for release to fellow lawmakers Thursday.
Still, there seems to be a lack of consensus around major pillars of the plan; while Gibson, R-Mapleton, said the proposal could include adding sales tax to gasoline purchases, Hillyard said that idea would be a tough sell in the Senate.
“And I understand that putting a sales tax back on food is a really sticking point over in the House,” Hillyard told reporters. “But we may collapse the whole thing.”
Utah House Republicans were told Wednesday to “stay tuned for big, big details” on tax reform. House Speaker Brad Wilson, R-Kaysville, told his caucus members that the longer they wait to act, the longer it takes for Utahns to benefit, and that he’d like to see an income tax cut in statute before Jan. 1.
“We will see if we get a proposal that we can elevate in a special session by the end of the year,” Wilson said. “It’s still my hope. We’re going to make sure good policy drives this, not the calendar."
Wilson’s legislative counterpart, Senate President Stuart Adams, told reporters Wednesday that “it would be great” to have a special session by the end of the year and confirmed that lawmakers are working toward that goal. Adams, R-Layton, said he’s hoping to drop the state’s current 4.95% income tax rate to 4.7%, if not lower.
Hillyard, a Logan Republican, said the draft proposal slated for distribution Thursday might feature tax relief for Social Security recipients and military retirees, as well as increasing the deduction for people with children. Expanding the sales tax to an unspecified list of service transactions and eliminating an unspecified list of tax exemptions might also form part of the overall strategy, the lawmaker told Senate Democrats.
He said he would like to convene in a special session this year to take up the food tax and income tax relief elements but suggested that other elements of the plan might have to wait. For instance, there probably won’t be “immediate action” to do away with the constitutional earmark that protects income tax revenues for public and higher education, although that’s something Hillyard said he wants to explore later on.
Hillyard said he and Gibson will release their joint proposal publicly this week and discuss it during a task force hearing Tuesday.
Absent a special session, no action is possible this year. Lawmakers convene for the annual 45-day Legislature in late January.
While the draft proposal remains under wraps, House Minority Leader Brian King said his Democratic colleagues would likely oppose any attempt to fully tax food or to cut into state education aid.
“We’ve got to do a better job of funding education,” the Salt Lake City Democrat said in a Wednesday interview. “If we don’t, we’re going to suffer, and the quality of life is going to suffer, and our economic development is going to suffer.”
Lawmakers created a tax reform task force in March after an effort to expand the sales taxes applied to service-based businesses imploded during the 2019 session. That task force held a series of town halls around the state during the summer in which taxpayers were invited to provide feedback, and it has since held meetings at the state Capitol on topics that include broadening the sales tax base and amending the Utah Constitution to allow income tax revenue to be spent outside the public education system.
The meetings at the Capitol have not permitted public comment.
During their budgeting process earlier this year, lawmakers held back roughly $75 million in revenue and designated a number of spending items as one-time, meaning those funds will revert back to state coffers without additional legislative action. Those actions were intended to motivate the tax reform discussions, and provide a budgetary cushion for a potential tax cut.
“We’ve set aside $75-ish million for a tax cut and we also have a number of other things we would like to do to level the playing field,” Wilson said Wednesday.
The speaker’s comments came the same week that new revenue figures were released by the Utah Tax Commission, showing 8% growth in the individual income tax, 16% growth in the corporate tax and 5.4% growth in the sales tax.
Critics of the Legislature’s tax reform effort have questioned the need for changes when tax collections are growing, but proponents argue the disparity between those growth rates is indicative of a shrinking sales tax base and leading to a “structural imbalance” in Utah’s budget.
“We’re smart to be addressing this and figuring it out now,” Wilson said.
Bill Fox, an economist from the University of Tennessee, told House Democrats on Wednesday that Utah’s sales tax is growing at a sluggish pace compared with the economy.
“Even in the economic expansion, the share of your economy that’s being taxed keeps shrinking,” the visiting academic said during the caucus meeting.
As part of the tax discussion, King and other Democrats are pushing for greater transparency around the sales tax exemptions given to businesses — breaks that translate into roughly $1 billion in lost state revenue each year. Information about how much individual businesses are benefiting is not available to the public or legislators, and this secrecy prevents lawmakers from evaluating whether the tax exemptions are worthwhile.
“All we are doing is listening to corporations, businesses and industries come to us and say, ‘We’d like this tax break,’ " King said. “Something’s wrong with that scenario.”
Hillyard said he does see the need to evaluate the efficacy of economic development exemptions and will advocate to include such a requirement in the tax plan.