Governor Herbert and legislative leaders announce they will repeal controversial tax reform law (Updated)

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Republicans on Capitol Hill threw in the towel Thursday, saying next Monday they will repeal the just-passed tax reform package.

As reported Wednesday in it appears that the citizen referendum will likely get the required number of signatures, and be on the November ballot.

But if there is no tax reform law, then there can’t be any repeal by voters. So the referendum effort ends.

GOP Gov. Gary Herbert, Senate President Stuart Adams, and House Speaker Brad Wilson, sent out a joint press release just before 9:30 a.m. saying that it is clear to them many citizens are upset at the tax package, which will be repealed early in the 45-day session, which starts Monday.

GOP leaders said they will continue looking for solutions to the states tax distribution problems. But last year’s Tax Reform Task Force is dead, and with repeal the current GOP legislative leaders will just step back and let hot heads cool for a bit, at least a year.

A recent poll obtained by found most Utahns said they would support the referendum effort to overturn the tax law if it had made the ballot. The Dan Jones & Associates survey found 57% of Utahns said they were in favor of overturning the tax law, while 35% said they opposed. 

At his monthly KUED Channel 7 press conference Thursday morning, which was packed with reporters, Herbert said with repeal the state will have $160 m more — money slatted for an income tax cut with tax reform that now won’t happen.

He said there should be a future tax cut, because of the large revenue surpluses the state is facing — $482 million in ongoing tax growth, and around $200 million in one-monies left over from the current and last fiscal years.

But Herbert said the $160 million now freed up with the repeal should only come in a future tax reform effort.

However, all 75 House members and half of the 29-member Senate is up for election this fall, and legislators love to give a tax cut in an election year.

Wilson, R-Kaysville, told that his personal preference is to pay down state debt with that $160 million, or at least part of it. At the very least, it should be “put aside” to help the state deal with its dwindling General Fund problem, which will only grow worse with tax reform repeal.

“But I have been advocating for over a year” with tax reform “that there should be a tax cut. This is taxpayers’ money, after all.” He added that the House Republican caucus is currently not in a place to make any decision on the $160 million today, that will develop during the next 45 days.

Herbert is not running for re-election this year, he will retire next January. However, Lt. Gov. Spencer Cox is in a tight race to replace his boss with five other well-qualified GOP candidates.

And Cox may want the Legislature to give a tax cut in the session that starts Monday — as it is likely that the other five gubernatorial Republicans, who have already come out against the tax reform package adopted Dec. 12, will beating the tax-cut drum themselves over the next 45 days.

Cox has opposed parts of tax reform, like putting the whole state sales tax back on food, but then stepped away, saying his Utah Election Office would have to deal with the referendum signatures and as its boss he had to stay away from the repeal issue.

All the other major GOP candidates: Former Gov. Jon Huntsman, Former House Speaker Greg Hughes, Salt Lake County Councilwoman Aimee Winder Newton, Former GOP state chairman Thomas Wright, and hi-tech millionaire Jeff Burningham, have all strongly come out against tax reform and for the referendum.

Legislative Republicans and Herbert giving up on tax reform is clearly the largest political defeat for GOP state officeholders since the public-school voucher debacle of 2007 — a decade ago. A repeal referendum quickly grew then — legislators didn’t repeal vouchers, however — but citizens did at the ballot box.

But that was over a rather compartmentalized question — taxpayer dollars going to parents who send their kids to private schools.

This tax reform is much broader — affecting literally all Utahns.

And they didn’t want it, especially putting the whole state sales tax back on unprepared food.

And Herbert agreed that is what killed this tax reform, as pointed out in a Wednesday analysis.

The public “did not agree” with the Legislature’s tax reform package, said Herbert, who did not lead out on the specific reform measure, but supported it in the end and signed it into law.

It’s as simple as that, he said.

But, of course, it is much more complicated than that.

And there will likely be hard feelings on Capitol Hill for some time over the failed effort.

Herbert acknowledged that he and leading legislators didn’t do a good enough job selling tax reform to the public. It is complicated, but social media — and to some extent the referendum-backers themselves — kept taking about the gasoline and food tax hikes without mentioning large income tax cuts, which overall were $160 million for individuals and families, after taking in the other increases and adjustments.

If fact, as Herbert pointed out again in his press conference, Utah families, especially poor families, would have fared very well under tax reform — getting much more money in their pockets and enhanced programs aimed at helping them.

In fact, one of many ironies in the failed tax reform effort is that Utahns were going to see a $635 million reduction in many of the current taxes — real changes in how much income tax they were going to have to pay. That was offset, admittedly, by increases in the food tax and gas tax.

Counting those tax hikes, individuals and families would have seen in one year a $188 million tax cut –hundreds of dollars depending on your income level and such. Business would have had to pay $66 million more, and that likely would have been passed on to individuals, thus the overall $160 million tax cut.

Dependent personal exemptions would have greatly been increased, with a single individual getting one exemption for the first time.

Seniors would see their Social Security income tax free (up to a certain level). And a new 

Earned Income Tax Credit was created. Plus much more.

Well, that’s not going to happen now.

Other key points the governor made:

There should be no new tax reform effort in the 2020 Legislature. “Let’s take a breath, step back, hit the pause button.”

The candidates for governor this year have a responsibility to step up and give specific tax reform proposals, not just sit back and criticize what the Legislature did in this now-failed effort. “It will be expected” of them by voters, said Herbert.

His recommended budget was built on the tax reform revenue numbers, but lawmakers needn’t throw it all out — as usual, most of the governor’s budget will be ultimately adopted, and it can easily be modified — like still providing an additional $100 million for air quality and putting hundreds of millions of new dollars into education.

The good news is Utah’s economy is still the best in the nation. The Legislature was trying to “look around the corners” at financial-balancing problems down the road in tax reform, and the state should be able to get by “for two or three years” without having to face a crisis in the General Fund, he added.

“The Legislature’s was a visionary attempt, and it should be appreciated.”

The dumping of tax reform means there is literally no chance that GOP leaders will try to repeal the constitutional earmark that currently sends all individual and corporate income tax to public and higher education.

That would have been yet another controversial public fight — with voters ultimately asked to amend the Constitution, as they likely would have been asked to repeal the tax reform package this November.

Politically speaking, it was just too much.

And so even though lawmakers on the Tax Reform Task Force spent hundreds of hours since last spring dealing with this issue — in order to bring complex and inter-related tax reform package to a December special session, it was all for nothing.

Or was it?

A lot was learned in the process — 17 statewide public hearings, more than 60 hours of public testimony.

Herbert declined to say whether putting the sales tax back on food should be part of any future tax reform — he will be out of office, in any case, when — or if — tax reform resurfaces.

The food tax “was really the catalyst that drove this issue” in the referendum battle, he did say. He suggested that rather than give a $40 million tax rebate to low-or-middle-income Utahns in lieu of the lower food tax rate, it may be better to provide qualified Utahns an I.D. card, which they could show at checkout and get their lower food tax immediately.

But all that is for the future.

Early next week the controversial tax reform law will be repealed — the fate of the $160 million income tax cut up in the air.