Watch for an interesting debate coming out of GOP Gov. Gary Herbert’s office over the next few weeks as he and Republican lawmakers haggle over whether to cut the state sales tax or personal income tax this year.
Tuesday, in a budget briefing by Herbert’s budget director, Kristen Cox, before an open House Republican caucus, you could see some lines are being drawn.
Cox said Herbert is not against cutting the income tax this year, but time and again she said it would take political courage to broaden the sales tax base and give a sales tax cut.
First, because industries and businesses that don’t now charge the state sales tax (mainly because they provide services, not goods), will bring pressure on legislators to stay out of the tax system.
Second, it may be harder to cut the sales tax rather than the income tax, because an income tax cut is seen and felt more by Utah’s higher-income individuals, who may have more political clout than low- to middle-income folks who would benefit more from a sales tax cut.
What is also not being talked about much is the fact that lawmakers and Herbert gave a $52 million personal income tax cut/reform just last year – the Legislature’s response to the large federal income tax cut, which would otherwise have raised tens of millions of extra Utah income tax revenue through federal changes.
Thus it may be time to cut the sales tax, not the recently-reduced personal income tax.
“Cutting the (Utah) income tax really benefits the high end” of taxpayers, said Cox. “But not the low end,” poorer Utahns who may not pay any, or much, state income tax as it is.
However, because any sales tax is by nature regressive – it impacts low-income folks a lot more than high-income folks – a sales tax cut will help poorer Utahns more, she said.
“Be mindful of low income” Utahns if any state income tax is reduced, she added.
“It will take courage to do the right thing,” said Cox, “Even though it is tough, really, really hard” to do.
And considering that Utah’s sales tax base is shrinking – with not enough services being taxed now – future generations will thank lawmakers for taking action to broaden the sales tax base.
“Look at generations to come. This is absolutely the right thing to do,” she said.
Cox emphasized that Herbert is not opposed to some kind of income tax cut this year.
The governor suggests a $200 million tax cut, all in the sales tax.
House Speaker Brad Wilson, R-Kaysville, suggested Monday a $225 million tax cut. And GOP legislative leaders have talked about an income tax cut, rather than a sales tax cut.
But Cox told the House Republicans it shouldn’t all come in the income tax, at the very least there should be a mix of cuts between income and sales tax.
“We would want a mix, to see that everyone wins, not just the wealthy,” Cox said.
Thus you can see the political lines being drawn: A sales tax cut helps more Utahns, and more lower-income folks, while an income tax cut benefits more the rich.
You can see Herbert’s detailed 2019-2020 budget recommendations here.