Utah lawmakers came into the 2018 session ready to overhaul Utah’s tax system with the battle cry of “broaden the base and lower the rate.” As we enter the second week, Republican leaders now say any sort of major reform is probably not possible.
There are two things working against lawmakers this year. 2018 is an election year, which always makes tax overhaul – excluding cuts – difficult. Republicans in Congress passed a major tax package just before the end of 2017, which has thrown Utah’s tax system into turmoil. State leaders are looking at a financial windfall of between $25-80 million this year because Utahns will pay more state income tax because of changes on the federal level
That means lawmakers are looking at cutting income taxes to offset the windfall, even if it’s just a slight reduction.
“There’s motivation in this Legislature to somehow diminish and give that back or adjust our system,” says Niederhauser. “In my personal opinion, we will find a way to reduce taxes by $80 million on the personal side.”
Right now, Utahns pay a flat 5% income tax, but because of exemptions and credits built into the system, the effective rate is 3.8%. Niederhauser says lawmakers think they can reduce the current income tax rate to close to 4.9%.
There was talk coming into the session about adjusting Utah’s sales tax to reflect the reality that our economy was becoming more service-based. Another source of irritation for lawmakers is the growing prevalence of online sales, which are robbing state coffers of hundreds of millions of dollars in sales taxes annually.
Niederhauser says all of that is putting significant pressure on Utah’s budget, but he thinks a bigger problem is lawmakers shift $600 million annually from the general fund to pay for transportation needs. He warns there are going to be some catastrophic effects on Utah’s transportation infrastructure as the state’s population doubles over the next 30 or 40 years
“How are we going to pay for those roads? Right now, we’re feeling congestion like we’ve never seen before, and that’s after we just spent billions investing in roads over the last couple of decades,” he warns.
He says lawmakers will have to become much more forward thinking to deal with the problem. Right now, Niederhauser says he feels like a “canary in a coal mine” on the issue.
“This is a wakeup call for everybody in this state. With the magnitude of the problem we’re going to face, we might not be able to keep up. We are going to have to get creative about incentivizing people not to use the roads during peak times.”