Former state employees, police officers, firefighters and judges will have their retirement pensions taxed, Utah lawmakers decided Tuesday.
But as legislators rushed to finish their special session Wednesday, they were still undecided about what kind of tax cut to give and how much it would be. Also undecided as the noon hour approached was whether to raise state retirees' pensions by 3 percent to offset their new income tax burden.Senate and House Republicans also were squabbling over how much of a tax cut to give.
Still smarting over their failure to give a tax cut last general session, senators - who don't favor an expanded exemption for senior citizens at this time - didn't want the House to send over such a plan. Senators didn't want to be blamed for denying retirees such tax breaks.
That won't be a problem this special session. House Republicans voted Wednesday to refer all bills expanding retirement benefits to a legislative task force for further study and public hearings.
House Republicans also voted to set aside $12.4 million for expanded tax exemptions and to return to special session within 30 days to address the issue. It was unclear whether the Senate would go along with that.
House Republicans still wanted a $34 million income tax rate reduction.
Senators were still trying to decide if they'd accept the House's $34 million deal or if they wanted less.
On Tuesday, the Senate, on a straight party-line vote, approved an increase in the federal deduction allowed on state income tax returns as its tax-cutting option. Meanwhile, House Republicans chose a 5 percent reduction in the income tax rates.
Most Democrats in both houses oppose either alternative, saying the $94 million surplus should be spent on education and social services. "Common sense tells me that additional money can reduce class sizes and put textbooks in the hands of our students," said Rep. David Jones, D-Salt Lake.
"It's pure and simple greed by those making more than $50,000," added Rep. Allan C. Rushton, D-West Valley.
At least six Republicans broke ranks and voted against a tax cut, advocating the money instead be spent on education, roads, alcohol and drug treatment programs and the poor and needy.
"I am overwhelmed by the needs of the state," said Rep. Kim Burningham, R-Bountiful.
The Republican majority, however, said that when taxes were raised in 1987, legislators promised to return any amount above and beyond what was needed to balance the budget. "The prudent thing is to keep our promises," said House Assistant Majority Whip Byron Harward, R-Provo.
The tax cut bill passed the House by a 43-30 margin before being defeated by the Senate.
A conference committee was working out a compromise between the Senate's federal deduction proposal and the House income tax rate reduction.
If senators are forced to accept an income tax rate reduction, they promise it will be less than what the House wants. Senate President Arnold Christensen, R-Sandy, said he doesn't have enough votes within his GOP caucus to pass a $34 million rate reduction. "I have the votes at $20 million - what the governor recommends - but not at $34 million," he said.
Because it is unlikely that Senate Democrats will join in giving a $34 million tax cut, especially since most of them don't want a tax cut now at all, Christensen guesses it's $20 million or nothing.
House Democrats, while conceding defeat on the tax cutting front, said the real battle will occur in January's general session when bipartisan attempts will be made to restructure Utah's income tax brackets.
Lawmakers also had to do something about state retirees' pensions because of a U.S. Supreme Court decision. The high court ruled that state and federal retirees' pensions have to be taxed equally. Utah is one of a handful of states that exempt state retirees' pensions but tax those of federal retirees.
By passing SB7, lawmakers approved taxing state retirees' pensions, thus meeting the court's demands. SB8, approved by the Senate Tuesday and now before the House, would give a 3 percent increase in those state retirees' pensions to offset that tax increase.
SB8 isn't perfect, supporters admit. Some low-income retirees who wouldn't pay any state tax in any case would get a 3 percent windfall. Conversely, high-income retirees would pay more in state tax than the 3 percent increase would bring in, they said.
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Funding OK'd
Utah senators approved $26,000 Tuesday to fund the Governor's Commission on the Status of Women. The measure, which represents the first funding the commission has had in years, passed on a 28-0 vote and was sent to the House. Passage came only after senators added language directing the panel to "focus its efforts on concerns of women in both traditional and non-traditional roles."