If Gov. Gary Herbert and the Utah Legislature are able to cram through House Bill 441, which creates a new tax on service businesses and rearranges the tax collection of $10 billion dollars — and do it in just two weeks, without any public input — they will have pulled off the biggest money grab of recent times.
Changing the tax structure this quickly is being done for a reason. The legislators pushing it are avoiding an honest discussion of the pros and cons of their tax experiment. They do not believe this bill would pass if taxpayers understood it. It is being jammed through, at the tail end of the legislative session, with the hope that no one will notice until it is too late.
The pitch is, and the headlines claim, that the politicians are lowering taxes for all Utahans. At the same time, they claim that the bill is revenue neutral. For this bill to be revenue neutral someone is going to have to pay new taxes in order to offset the tax revenue lost from each person who has their taxes reduced. Obviously, only one of their promises can be true — not both. To add to the confusion, other analysis shows that the tax change will generate a net gain to the state of $200 to $400 million per year in new revenue.
Who are the unlucky people whose taxes will be increased? Are they the hundreds of thousands of Utahans that purchase “services” every month? Or are they the thousands of service businesses throughout the state? Millions and/or potentially billions of dollars are going to be taken from someone. We do know that every person who sells or buys services in Utah will pay the tax.
The intended consequences of this bill are very concerning at best. The unintended consequences may be devastating. This new tax bill would give Utah service companies a 3.1 percent disadvantage when competing against similar non-Utah companies who are not burdened with this tax. Time spent by local companies collecting, accounting for and being audited by a new tax collection bureaucracy will cost Utah businesses.
Every state in the union uses some combination of sales tax, income tax and property tax to pay their bills. All of the sudden, even though our state is rolling in money from last year’s tax collection, a bureaucrat decides that the Utah tax structure no longer works? Why do we need so desperately to fix something that isn’t broken? We may be proud of our pioneer heritage but it makes no sense to be the first to implement an unnecessary new tax experiment.
How is it possible that a Republican Legislature has this obsession with increasing our taxes? According to the state website, the state was successful in extracting $858 million more from its citizens in 2018 than it did in 2017. In addition, they have recently recaptured the sales tax they were losing to online retailers like Amazon. When will the government have enough money? It never will be enough…as long as the focus is always on raising more revenue to support more spending. Tax and spend has never been a sustainable strategy and never will be. Controlling spending is the only solution that works long term. It’s basic math.
Utah has always been one of the most entrepreneurial-based economies in the country. Creating a brand new 3.1 percent tax on services is a first step in reversing that success. This is the birth of a new tax and taxes never really go down once they are put in place. They only grow.
David Young | Paragon Wealth Management
David Young is president of Paragon Wealth Management, Provo.