Utah’s Legislature, governor announce plan to repeal controversial tax reform law

(Trent Nelson | Tribune file photo) The House Chamber in Salt Lake City on Thursday Dec. 12, 2019 as lawmakers hold a special session focusing on tax reform.

In a dramatic reversal, Gov. Gary Herbert and the state’s legislative leaders announced Thursday they are repealing the massive and controversial tax reform plan they passed just last month in a special session and have been fiercely defending ever since.

They made the decision to retreat under mounting public pressure — after a bipartisan group declared it had gathered about 152,000 signatures from Utahns in favor of putting the tax legislation on the ballot for potential repeal.

“We decided the best course of action, reflecting the will of the people, is in fact to go back and push the restart button,” Herbert said Thursday.

A new Salt Lake Tribune poll shows that 60% of Utahns opposed the tax reform plan and 25% supported it. Just 15% didn’t have an opinion. The poll, conducted by Suffolk University, surveyed 500 residents from Jan. 18 to Jan. 22. It had a margin of error of plus or minus 4.4 percentage points.

Herbert, Senate President Stuart Adams and House Speaker Brad Wilson early Thursday morning issued a joint statement laying out plans to repeal the tax bill during the first week of the state’s legislative session, which begins Monday. Clearing away the beleaguered legislation will allow state lawmakers to prepare the annual budget without the uncertainty of a potential referendum on the state’s existing tax code, the statement continued.

“In recent weeks, it has become clear that many people have strong concerns regarding legislation passed in December to restructure and revise our tax code,” the joint statement said. “They expressed their concerns by signing a petition to include the referendum on the ballot later this year. We applaud those who have engaged in the civic process and made their voices heard. We are not foes on a political battlefield, we are all Utahns committed to getting our tax policy right. That work is just beginning.”

The tax reform plan, while unpopular with the public, had been vocally supported by the Utah Taxpayers Association and the Sutherland Institute, a conservative think tank that had taken out full-page ads endorsing the changes as good for Utahns.

But while state leaders are backing down from the law they passed, they said they have not given up on tax reform.

“Utah has never shrunk from a challenge and, working together, we will chart the right path forward,” the joint statement said. “We will take time to reset and address this issue in the future in a way that allows all Utahns to fully understand the challenge we face, engage in the debate over the best solutions and, ultimately, enact policy that best positions Utah for decades to come.”

This is Utah’s second failed attempt in the past year to overhaul the tax code and correct what state leaders argue is a growing budgetary imbalance that could jeopardize critical state programs. Toward the end of the 2019 session, amid an outcry from business interests and lobbyists, lawmakers abandoned a sweeping overhaul package that would have imposed sales taxes on a broad array of new service transactions.

Over the ensuing months, a special task force held town hall meetings across the state to hear from the public and sell Utahns on the urgent need for tax reform, agreeing to pay a public relations firm up to $150,000 to handle the messaging.

The tax package that the task force ultimately presented to the Legislature hiked the sales tax on food and added new taxes to gasoline sales and some previously untaxed services, including pet boarding, Uber and Lyft, car towing and streaming media. Still SB2001, the bill passed in last month’s special session, would have yielded an overall tax cut through an income tax rate reduction, an increase to the per-child dependent exemption and the creation of new tax credits.

A bipartisan group, headed by conservative former lawmaker Fred Cox, launched a referendum effort to overturn the bill within days of the special session — and has since received support from most of the candidates for Utah governor and Harmons, the Utah-based chain of grocery stores.

Earlier this week, the group declared that it had collected about 152,000 signatures, far exceeding the number they needed to put tax reform to a vote later this year. Those signatures have not yet been verified by the state’s county clerks.

Cox said the campaign was not interested in negotiating the will of the people but that legislative leaders are free to surrender if they choose to.

“We still want the signatures to be verified. We want the process to continue,” Cox said. “If the Legislature does a full repeal and the governor signs the repeal bill, it would appear there would be one less item on the ballot this fall.”

Herbert on Thursday gave credit to lawmakers for tackling a difficult issue, adding that “sometimes doing the right thing is not necessarily the popular thing.” But he also offered some soft criticisms of the Legislature’s plan, saying he never believed that increasing food taxes was good policy and that attempting to do so derailed the reform effort.

“The increase to the sales tax on food was really, probably, the catalyst that drove this issue,” Herbert said.

That position is somewhat contradicted by Herbert’s earlier comments in support of the bill. After Harmons joined the referendum effort — motivated by opposition to the food tax increase — the governor issued a statement criticizing the grocer for not meeting with him and legislative leaders to resolve their concerns.

“As a corporate citizen in the state, they have a right to engage in the political process,” Herbert said at the time. “But they also have the responsibility to do so in a way that elevates the public’s discourse and is based on facts and not emotion.”

The governor, who is not seeking reelection, also had urged Harmons officials to “rethink their ill-advised decision" to oppose tax reform.

Candidates for what will be an open governor’s seat were quick to welcome Thursday’s decision to scrap the unpopular tax bill.

“It is always best to listen to everyday Utahns — not just when threatened with a costly referendum," Republican candidate Aimee Winder Newton said in a prepared statement. "I look forward to the public engaging with our state leaders as they roll up their sleeves, undertake a better process, and apply the feedback we’ve heard from so many Utahns.”

Another Republican candidate, Provo businessman Jeff Burningham, expressed his thanks to the volunteers, organizers and private business people who made the referendum campaign a success. He also suggested that the tax reform controversy was indicative of “groupthink” in state government.

“The people of Utah have sent a strong message to the Legislature and governor’s office that they do not want this tax bill,” he said. “This is Utah grassroots at its best.”

Lt. Gov. Spencer Cox, one of the leading contenders in the governor’s race, called the grassroots referendum effort “remarkable” and said it matched the feedback he’s been getting during his campaign stops across Utah. In light of the concerns he was hearing, Cox said he tried to warn the Legislature not to push forward with the reform package.

“I was the one sounding the alarm bells to anyone that would listen, saying, ‘Hey, guys, this is a huge mistake,’” the lieutenant governor said during an interview Thursday. “And what I kept hearing back from legislators was, ‘It’ll be fine. As soon as we pass it, people will forget about it.’"

Frustration over the Legislature’s decisions to replace voter initiatives — such as those on Medicaid and medical marijuana — also likely fueled the public outpouring on tax reform, Cox said.

“People are getting tired of inaction on the legislative front," he said. “And then when action happens, it’s to change what people have been asking for."

Members of the Utah House Democratic Caucus said the support for the referendum campaign confirms what they heard from constituents during the past year of debate over tax reform.

“Now that tax reform is back on the table, we urge our colleagues not to rush the process,” a caucus statement said. “While we believe Utahns understand the importance of reforming our tax system, our constituents want a fairer and simpler plan.”

And Utahns Against Hunger, one of the first groups to join the referendum effort, issued a statement thanking the governor and legislative leaders for their decision, while also expressing concern that food taxes could be again targeted in future reform legislation.

“It is still early in the process, and we hope that after the repeal of SB2001, the leaders of Utah and the people of Utah can start having a conversation about tax reform in good faith,” the organization said.

Herbert suggested that Utah “take a breather” on the issue of tax reform. He said the budgetary challenges that led to the controversial bill have not been solved but that it might be best to hold off until 2021 before starting the conversation over.

“I don’t know if there’s going to be a lot of energy to say, ‘Let’s jump right back into the fire’ here,'” Herbert said.

Earlier this month, Herbert released his annual budget recommendations, which this year were based on the assumption that the Legislature’s tax reform bill would take effect. He said his proposals for state spending are still valid with the repeal of the tax changes, and that state government has the means to meet its obligations.

“The good news is we are financially stable and the good news is we have the best, healthiest, most diverse economy in America,” Herbert said. “So we’ve got a lot of things going for us.”