This is a column attempting to explain why the Legislature’s Tax Reform Task Force’s efforts to restructure (they may say “reform”) the state’s whole tax system makes sense.
If you had told me 30 years ago that I would be writing a column basically supporting what the majority Republicans were doing in such a critical area, I probably would have said the future me must be senile as I started collecting Social Security.
But stick with me a bit. The following is complicated. However, you can break it down to make economic and fiscal sense for the state.
First, you have to understand a few facts about what’s happening with state taxes now:
— While growing each year, the state sales tax (rate of 4.85 percent) is not keeping up with the personal and corporate income tax (4.95 percent flat rate).
The sales tax revenue grew by 4.8 percent last year, the personal income tax take went up by 8.1 percent and the corporate income tax was up a whopping 17.1 percent.
— Currently, the sales tax funds more than half of the Transportation Fund (road construction and repair), a bit of the college and university costs, and all the rest of state government except K-12 public education (which also gets money from local school districts’ property taxes, not set by the state).
Soon, maybe even next fiscal year, there won’t be enough sales tax revenue to pay for all the needs that come for roads and other non-education programs, including Human Services, where there is a long waiting list of needy Utahns who are suffering and asking for help.
The Task Force’s reforms are holistic — they need to be taken as a whole, and while I may not like certain parts, like putting the whole state sales back on unprepared food, taken as a whole the reform makes fiscal sense, considering what needs to be solved.
So, here are the main parts of the reform package:
— Expand the sales tax base to include more currently untaxed services, like online streaming of movies and TV shows.
Utah’s sales tax model is outmoded. One example, we used to buy or rent movies and watch them on our DVRs. Now we rent or buy a movie online to view it. The first is taxed, the second isn’t. Not fair or rational.
— Allow all state tax revenues, no matter what the source, to be spent on all general programs, including higher and public education.
But the Utah Constitution says all income tax revenue can only go to colleges or K-12 schools. Utah is the only state that does this. And the earmarking ties the hands of legislators, who set the budgets, and the governor who signs off on budgets.
The change takes a constitutional amendment, two-thirds votes in the state House and Senate and passage by voters in a general election. UtahPolicy.com/Y2 Analytics polling shows only 30 percent of Utahns favor such an amendment, with half against and 20 percent unsure.
The best state government policy would be to amend the Constitution — with some spending guarantees for education — and have only one big state General Fund, which gathers sales and income taxes — and then have a bunch of “user” funds, like Transportation (gas tax, etc.), water development and so on.
— Because the current gas tax brings in less than half of our current Transportation Fund (the sales tax bringing in the most), we have to start getting more “user-fee-like” monies into roads.
While this will take a few years, the Task Force wants to remove the current wholesale fuel sales tax exemption as a start.
A new summary will be made public sometime Friday afternoon, as the proposal is fine-tuned.
Trust me, it’s complicated. That’s because the GOP legislative leaders are trying to solve a complicate tax structure problem.
Here are the main parts (and remember, each addresses the tax structure issues I listed above):
— Expand the sales tax base and remove some current sales tax exemptions, both of which brings more sales to be taxed.
These include the wholesale gasoline exemption, which could raise the at-pump price of gasoline and diesel by 5 percent.
New taxes on some services, like online streaming.
Put the whole state sales tax, 4.85 percent, on food. To offset the higher cost, families below a certain income level can apply for a $125-per-person refundable income tax credit.
— Constitutional amendment removing the personal and income tax earmarks for public schools.
— Do away with the gas tax wholesale exemption and make other changes — some coming in future years — that will find a way to make those who drive on our roads, pay for our roads.
To make this all go down a little easier, GOP leaders are looking at a $80 million overall tax cut, with more than $130 million coming to individuals.
Businesses would actually see a $50 million tax hike. But it’s likely they would find a way to pass much or all of that along to individuals — thus the overall $80 million tax cut figure.
This will come, mainly, in an income tax rate cut, from 4.95 percent to just under 4.6 percent (maybe even as low as 4.5 percent, if some things can be worked out).
But there are other changes to help low-income folks:
— The $125-per-family-member income tax refund to compensate for the food tax hike.
— Quadrupling the child deduction, to help big families who pay more for food.
— Deducting Social Security income on state tax returns for low-income Utahns.
While anyone, including me, can find fault with some, or much, of the tax restructuring proposal, overall I think it is a fair and comprehensive attempt to fix the state’s tax structure, which is outdated and unfair.
And, properly done, these changes can really help low-income folks (a state check for $500 for a family of four), and can guarantee future education funding.
All Utahns should educate themselves on what is being proposed. And look at the big picture and long-term benefits of lawmakers and the governor fixing a tax structure that isn’t working well at all today, and will only get worse over the next decade.