Tax reform bill proposes bigger income tax cut and new fuel taxes

(Francisco Kjolseth | Tribune file photo) Sen. Lyle Hillyard, R-Logan, co-chairman of the tax structuring and equalization task force, joins the tax reform task force as it holds its first meeting at the Utah Capitol in this Aug. 19, 2019, file photo. Earlier in the year the panel conducted a statewide listening tour to gather input on changes to the tax code and other options for addressing the state's reported budgetary challenges.

Draft legislation for a major overhaul of Utah’s tax code was released by lawmakers on Thursday, adding detail and specificity to the long-gestating work of a task force that has been studying the issue for much of the year.

But the proposal was met with criticism from the public during a standing-room-only meeting at the Capitol on Thursday evening, and generated frustration among task force members who questioned why they were provided with a copy only hours before they convened.

Sen. Curt Bramble, R-Provo, raised a number of complaints about the drafting process, saying that he had inadequate time to prepare for Thursday’s hearing and that he had to direct constituent questions to early reporting on the bill published before the bill was publicly released.

“That’s not the way we should be making laws here,” Bramble said.

Bramble continued to raise questions during the hearing, leading to one exchange in which he traded jabs with the task force’s co-chairman, Mapleton Republican Rep. Francis Gibson.

“Would have been nice to have those [questions] all along,” Gibson remarked.

“Would have been nice to have a bill,” Bramble responded.

Largely based on the task force chairmen’s recommendations, which were released last month, the bill would cut Utah’s income tax rate from 4.95% to 4.58% — slightly lower now than previous iterations — while significantly expanding the per-child tax credit, increasing the sales tax on groceries, and creating a new earned income tax credit and grocery tax credit.

The bill would also exempt feminine hygiene products from the sales tax — repealing the so-called “tampon tax” — while removing a number of preexisting exemptions and expanding the sales tax to a variety of services-based businesses, such as veterinarians, car washes and landscaping.

A new excise tax of 10 cents on a gallon of diesel fuel is also included in the bill, while purchases of other motor fuels would be subject to the state’s sales tax in addition to traditional state and federal gas taxes.

Taken in sum, the changes are estimated to increase sales tax revenue by $570 million while cutting income tax revenue by $650 million, resulting in a roughly $80 million tax cut while shifting funding from the restricted and income-tax-supported education fund to the unrestricted general fund.

While originally intended to modernize the state’s tax structure to capture the emerging services economy, the efforts of the task force have increasingly focused on removing restrictions to give lawmakers maximum budget flexibility. Legislative leaders have indicated support for a constitutional amendment that would allow the growing income tax to be spent outside of public schools.

Members of the education community typically resist that change, and on Thursday the Utah Board of Education released a list of four principles it encourages lawmakers to follow in the tax reform discussion, which includes “maintaining a constitutional guarantee for education funding.”

Legislative leaders have alluded to ongoing negotiations regarding a new funding source for schools, and a summary of the tax bill includes a reference to “holding public education harmless.” But no details on a potential funding structure to replace the education fund were included in the bill, or divulged during the tax force hearing.

Michael McDonough, a Granite School District teacher, told task force members that a new funding source needs to be developed before repealing the income tax restriction, comparing the current process to demolishing an aging school with children still inside it before starting construction on a replacement campus.

“The only reason you would need to make these changes is if you wanted to spend less on education,” he said.

Beyond education, anti-poverty advocates have criticized the task force effort to increase the grocery sales tax, arguing that a yearly tax credit does little to offset the day-to-day pressures of higher food costs for low-income Utahns.

“It’s immoral to tax life’s essentials,” Alex Cragun of the group Utahns Against Hunger said Thursday in a prepared statement. “We should be studying policies that reduce barriers to healthy food choices, not building them.”

And task force member Sen. Karen Mayne, D-West Valley City, asked about the process for making sure low-income families apply for the grocery tax credit, as the current plans call for that process to include separate tax forms filed in addition to an annual return.

Task force co-chairman Lyle Hillyard, R-Logan, said it will be up to Utah families to obtain and file the proper documentation to secure their annual grocery refund.

“If people don’t want to file a form, I can’t really go door-to-door,” he said.

Steve Garrett testified that his personal taxes have increased by roughly $4,000 over the past year, a combination of state and local taxes and the addition of sales taxes to “every cotton-picking thing” that he purchases online.

He said taxes should be cut in response to surpluses in the state budget, and spoke against the creation of grocery and other tax credits intended to help low-income Utahns.

“Seriously? You’re going to give my money to the people who didn’t earn it?” he said. “That is not the Utah way.”

Thursday’s release of the draft bill triggered sniping on social media by the House Republicans and House Democrats Twitter accounts. After the Democrats account said it was disappointed in the policy proposals, and saying the bill was not sound public policy, the Republican account criticized the minority party for “resorting to base, party-building rhetoric” and saying the proposed legislation is “remarkably progressive for a conservative state.”

But “progressive” would be a mislabeling according to an analysis by legislative staff, which indicated that, under the proposed tax reform, higher-income earners would enjoy the bulk of tax cuts and benefits.

The task force voted during its last meeting to open an additional bill file for the constitutional amendment, but that bill’s language was not released Thursday.

Members of the task force will meet Thursday evening at the Capitol to discuss the draft bill and take public comment. Another task force meeting is scheduled for Nov. 21 ahead of a potential special legislative session in December, and Gibson said Thursday there is a “good chance” that at least one additional meeting of the task force will be held.