Sen. President Wayne Niederhauser sees the 2017 Legislative session as a missed opportunity to address tax reform.
Niederhauser, R-Sandy, is a bit of a canary in a coal mine when it comes to paying for Utah’s needs in the future, especially since the population along the Wasatch Front is expected to double by 2040, which is just 23 years away. He has repeatedly said the state would not be able to pay for things they need to if there’s not some sort of change in tax policy.
“We will rue the day we didn’t invest in the assets of this state to meet our needs,” says Niederhauser. “We should have had this discussion last year, but politically it’s very difficult.”
This session, lawmakers started discussing a massive tax reform package that included reinstating the state portion of the sales tax on food, lowering the income tax rate while phasing out some tax credits and exemptions. Legislators dropped the income tax portion, then discovered restoring the food sales tax wouldn’t have the impact they thought it would.
Even though there was no tax reform this year, lawmakers will study the issue over the interim and come back in the 2018 session to try and find a solution.
“The leaders are starting to get it,” he said. “These are some of the toughest decisions we will make as lawmakers.”
One idea that is gaining more and more traction is capturing the sales tax on internet sales. That tax is already owed, but most taxpayers don’t claim it on their returns like they should. A bill to require online retailers to collect that tax failed during the just-completed session. Some estimates say Utah is losing $200 million per year by not collecting that tax.
2018 is an election year, usually not the most optimal time for lawmakers to be discussing tax reform. But, there will be some added urgency because the legislature will be staring down the barrel of a proposed income tax hike to boost public school funding. The “Our Schools Now” organization wants to put the proposed income tax increase on the 2018 ballot. If it passes, income taxes will increase 7/8ths of 1-percent, which could provide an extra $750 million of funding for public schools.
Gov. Gary Herbert has been banging the internet sales tax drum for years and says that’s a major step toward finding extra money for schools.
“If you put that with what we can do with closing loopholes and the continued growth of our economy, and you come pretty close to the $700 million that everybody is saying we ought to have,” he said.
Niederhauser sees a day of reckoning coming for lawmakers in the not too distant future. For example, if no changes are made, he says Utah’s higher education system will be funded entirely out of the education fund in 3-5 years, which will really hamstring policy makers.
“It may require a sense of crisis before we do anything. Congress is a great example of that.”
The good news for Niederhauser is lawmakers seem willing to address the problem before it gets to a crisis level.
“We have created a will and desire to do something,” he said. “Now we have to find out what that is.”