Exclusive: Legislative leaders planning to tackle tax reform this year

Utah State CapitolUtah GOP legislative leaders have decided to go for a “big lift” on tax reform this session, now with only three weeks left.

UtahPolicy has been told that Republicans in the House and Senate will consider:

  • Placing the state sales tax – around 4.75 percent – back on unprepared food.

    And then lower that tax rate to make the sales tax take overall neutral for next year.

  • Lower the adjusted personal income tax phase-out from about $155,000 in annual income to around $100,000.

    And then lower the flat-rate income tax from 5 percent to 4.5 percent. Again, to make the adjusted revenue neutral for next year.

Queried on the proposed changes – taken to closed House and Senate GOP caucuses Thursday afternoon – House Speaker Greg Hughes, R-Draper, admitted it would be a difficult “lift” to get tax reform this session.

But 2017 is not an election year for all 75 House members and half of the 29-member Senate.

And 2018 is an election year for legislators.

Asked about that, Hughes said that is not the major factor – not at all.

He then went into a rather lengthy discussion of how the state’s current tax system – personal and corporate income tax, sales tax and gasoline tax – are moving out of whack.

“The gas tax isn’t coming close” to paying for all the state road needs, said Hughes – requiring a continued sales tax infusion.

The 4.75 percent sales tax is growing slowly.

And while the personal income tax is growing fine, the corporate tax is down.

In short, Utah needs tax reform.

“Look, we can wait a few years and do nothing,” said Hughes.

“We can study this for a few years and basically wait until the growth chart lines between our needs as a state cross our revenue sources production.”

“Or we can get out in front of this thing and act now.”

“I’m for acting now, and so is our (62-member) House (Republican) caucus.”

GOP senators also talked about these ideas in their closed caucus Thursday, with a particular emphasis on restoring the sales tax on food according to Senate sources.

Senate Republicans always close their caucus. And rarely do they actually take votes in caucus, leaders tell the press.

Most House GOP caucuses are open, but Hughes said they closed Thursday’s caucus to ensure candid discussion from all members, some of whom barely won their elections last November, some of whom are archconservatives who would be against any tax hikes.

Hughes said he got a unanimous vote from his caucus Thursday to further pursue these ideas, and draft some bills for this session.

And while Hughes said time and again these two changes – broadening both the bases of the sales and personal income taxes, while lowering rates, would be revenue neutral next year, over time more money would come into state coffers.

That would be good for all state programs, but especially for public education – fueled exclusively by the personal income tax rate.

The GOP leadership actions now may well catch Republican Gov. Gary Herbert a bit off guard.

Thursday morning in his monthly KUED Channel 7 news conference, Herbert said with just three weeks left in this session he didn’t see any major tax changes.

He argued for caution and more study throughout 2017, with a tax reform plan coming to the 2018 Legislature.

“I love action,” Hughes said smiling. “I’m really up for this” political fight now.

“With my group” of GOP House members, “we are ready and able to take this on – and remember, it is revenue neutral, not a tax hike.”

Well, that may be true across the board.

But certainly, the “reforms” would hit various Utah families and individuals differently.

For example, one of the main reasons the sales tax was taken off unprepared food a decade ago was to give tax breaks to Utah’s poor families.

If you rarely eat out and prepare most of your food at home, this could be a tax hike, even with the tax rate going from 4.75 percent to a lower level. (Hughes couldn’t give the lower rate number yet.)

And if your income is more than $100,000 a year, you will see some of your current exemptions/deductions phasing out. And even with a lower tax rate (from 5 percent to 4.5 percent) could mean a tax increase for more well-to-Utahns.

Overall, however, it may not be much of a tax shift for different groups.

Many other states – even some run by Democrats – have been lowering their personal income tax rates as a way of enticing business expansion, said Hughes.

Hughes couldn’t say if these reforms – should they take place – would dampen enthusiasm for a personal income tax rate hike by the Our Schools Now group.

OSN, a group of civic and business leaders, plans a 2018 citizen petition initiative that would ask voters to raise their own personal income tax rate from 5 percent to 5.875 percent, or 7/8th of 1 percent.

That would raise each year $750 million more for local public schools.

Herbert and GOP legislative leaders are against that idea, saying it could kill the economic golden goose that is today’s Utah fine business climate.

But the leaders’ tax reforms would NOT significantly increase money for schools – since it is revenue neutral at first.

However, Hughes said reforming the income tax would — even with a lower rate – encourage jobs and income growth, thus leading to even greater tax revenues in the years ahead.

And sales tax reform – with its growth – will mean less income tax money would be needed for higher education, and that shift would mean more money for public schools, too.

He couldn’t put a number on what that public education natural revenue growth may be but said legislative budget staffers are working on those projections.

“Overall, this is sound tax reform, based on sound tax policy – broaden the base, lower the rate.”

He said both House and Senate GOP leaders endorse moving ahead this session with tax reform.

“We don’t need to do reform to balance” the 2017-2018 budget.

“We can get out of here” at adjournment March 9 “without doing anything – excepting promising to study all this for a few years.

“But we need to act – make the General Fund stronger (by reversing the weakening sales tax).

“Anything impactful is hard. But I love hard. I’m excited for this.”