Wealthy Utahns would pay a higher income tax rate and the state’s sales tax would be replaced with a tax on businesses’ gross receipts under a tax plan released Thursday by members of the House Democratic Caucus.
The proposal is unlikely to gain traction in Utah’s Republican-dominated Legislature, but is intended as an alternative to controversial reforms backed by legislative leaders and currently under consideration by a legislative task force.
“Under this progressive taxation proposal, most hardworking Utahns will still see a tax cut,” House Minority Leader Rep. Brian King, D-Salt Lake City, said in a prepared statement. “But wealthier Utahns would be asked to contribute a little more.”
The task force is scheduled to hold their final meeting on Monday, and House and Senate leaders say a special legislative session could be called later next week to enact reforms.
The likely bill, which has not yet been released in its final form, would cut overall tax receipts by $80 million to $100 million through a series of income and sales tax adjustments, most notably by expanding the dependent tax exemption, applying the sales tax to additional service-based businesses and increasing the sales tax on groceries.
Early estimates showed that wealthier Utahns would see the largest benefit from the proposed changes, with many lower-income Utahns — and particularly those without children — seeing an increase in their overall tax burden. During their most recent meeting, task force members discussed changes that could be made to increase the percentage of Utahns with a net tax cut, including allowing childless couples to claim a dependent exemption.
The $80 million to $100 million tax cut estimate does not include another piece of the plan — yet to be clearly fleshed out — that would propose rolling property tax increases at the local school district level in coming years that could offset a $100 million income tax cut in just five years. It is unclear whether that component of the reform discussion would be included in a special session next week.
But under the House Democrats plan, Utahns earning up to $150,000 would see their income tax rate cut from 4.95% to 4.64% while incomes between $150,000 and $250,000 would be taxed at 6%, incomes between $250,000 and $600,000 would be taxed at 7% and incomes above $600,000 would be taxed at 8%.
The state’s sales tax would also be eliminated and replaced with a 0.9% tax on business gross receipts, or $9,000 on a business with $1 million of annual revenue.
“Most people would save hundreds, even several thousands of dollars a year, depending on their income and spending habits,” task force member Rep. Joel Briscoe, D-Salt Lake City, said in a prepared statement. “Preliminary indications show up to 99 percent of Utahns will receive a tax cut with our proposal.”
The Democrats’ plan would also leave in place a current constitutional requirement that all of Utah’s income tax receipts be spent on public education.
Republican leaders in the Legislature say that constitutional earmark deprives them of needed flexibility when balancing the state’s budgets, and have suggested that tax reform will be combined with an amendment to repeal, or alter, that constitutional language, which requires a public vote.
Task force co-chairman Sen. Lyle Hillyard, R-Logan, said the issue with the state’s tax code is that sales tax growth is not keeping up with the state’s population. He said he’s open to discussion on alternate tax approaches if that discussion includes options for addressing the “structural imbalance” between the income and sales taxes.
“I appreciate my [Democratic] colleagues for proposing ideas,” Hillyard said, “though it would have been nice to hear about it in early meetings.”
And House Speaker Brad Wilson, R-Kaysville, said the House Democrats’ tax proposal would “strike a blow to the principles that have made Utah strong."
In his statement, King said it is clear that Utahns are not excited about the current task force plan and that more deliberation on taxing options is warranted before lawmakers are asked to vote.
“We do need to reform our tax system, but we think we need to devote more time to getting this right,” he said. “We owe it to the public to put our state on solid footing for the next century with a tax plan that is fair, simple and not rushed.”