Jonathan Johnson: Utah has a tax allocation problem

FILE - In this March 14, 2019, file photo, the House Representatives are shown on the last day of the 2019 Utah legislative session, at the Utah State Capitol. Utah Gov. Gary Herbert has signed a law banning most abortions after 18 weeks of gestation, setting the stage for a legal showdown. (Trent Nelson/The Salt Lake Tribune via AP, File)

This year’s legislative session ended with Gov. Gary Herbert and legislative leaders singing a kind of tax-bill funeral dirge for HB441, the complex tax bill introduced in the final weeks of the session.

Yielding to a firestorm of public criticism, the mourners, all with confirmed solemnity, pronounced the tax bill dead — at least, for now.

But everyday Utahns who stopped the bill were made to feel like they had simply misunderstood. Yes, the bill was highly complex, and, yes, it would be a massive change, difficult, and in some cases grossly unfair, but it was the only way to solve Utah’s tax problem.

Wait. Utah’s “tax” problem? Do we have a “tax” problem?

Most Utahn’s understand Utah is running a $1.2 billion projected surplus. Tax receipts don’t seem to be a problem.

Where Utah does have a problem is how the Legislature must allocate those tax receipts.

The heart of the issue is, even though Utah collects plenty in taxes, the Legislature is not free to allocate money where it is most needed. Why?

In 1931, Utah amended its Constitution to allow for the collection of income tax. The amendment required the Legislature to use income tax receipts only to pay for education.

Today, that amendment still ties legislative hands. Income taxes must go to education, and the rest of government is paid for by other kinds of taxes — principally sales taxes on goods we buy.

In recent years, economically, Utah has been shifting to more of a service economy. The results: we are buying fewer goods and sales tax receipts are declining. Meanwhile income tax receipts have grown — and account for most of the current surplus.

HB441 proponents thought they’d just tax services. Sounds simple enough, no? It’s not.

Taxing services is highly complex, and, even if done moderately well, will likely result in instances of double, maybe triple taxation.

Rural counties, with less high-ticket service providers, will be hurt.

Taxing services will likely result in a huge decline in services offered in Utah as some important service sectors leave Utah and relocate to where their services aren’t taxed, leading to job losses and declines in economic growth.

Only a handful of states have tried taxing services. Some have failed, and of the remainder, few are anything like Utah.

The solution to the allocation problem is much simpler than HB441

Before the Legislature launches a whole new form of tax, causing hardship, unfair consequences and maybe economic chaos and downturn, it should consider doing what it should have done long ago: Amend the Utah Constitution to allow the Legislature to allocate taxes as it sees best.

It’s not that hard and it’s certainly not complex.

Once amended, the Legislature can do its job of balancing all tax receipts with all governmental needs. If voters don’t like what it does, we can tell our legislators at election time.

Ask yourself this: Should we be bound by an amendment adopted when the nation was in the throes of a deep depression? Look around you. Does this look like a depression?

Of course, some may say, “But what about education?” I believe the Legislature, even with the freedom to do as it wants, will allocate plenty — maybe more — to education.

Utah is running a tax surplus, but the Legislature can’t allocate it as it sees fit.

Why not use the surplus to adjust for our economic shifts? Unless the Legislature runs amok, education won’t be harmed at all.

Let’s seize the moment of this allocation problem to do something lasting. The Legislature and the administration should lay the groundwork for a constitutional amendment. We have enough “other tax” surplus to get us through this year. And we need a permanent fix — not a special session to resurrect HB441.

Such an amendment is the simple solution to Utah’s “tax allocation” problem.

Al Hartmann | The Salt Lake Tribune Jonathan Johnson

Jonathan Johnson is a Utah businessman and former GOP gubernatorial candidate.