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TAXING QUESTION: HARD TO TELL IF TAX AX HAS EASED OVERALL BURDEN

SHARE TAXING QUESTION: HARD TO TELL IF TAX AX HAS EASED OVERALL BURDEN

That slapping you hear coming from Capitol Hill these days is probably the sound of lawmakers still patting themselves on the back for the great $140 million property-tax cut they enacted a year ago.

Now 12 months and another legislative session later, lawmakers are talking about cutting taxes again, this time by $100 million. If that happens - and it probably will - the 1995-96 Legislature will go down as the greatest tax-cutting Legislature in Utah history.But lost in all the tax-cutting hoopla is the $64 question: Did the amount you paid last year to support state government actually decrease? Perhaps more to the point, has your overall state tax burden gone down over the past five years?

The answers to those questions are likely "maybe," "depends" and "no one knows for sure."

Whether your tax burden is lighter than it was a few years ago depends a lot on where you live. Those in Salt Lake County are probably paying a whole lot more in overall taxes than they did five years ago, while those in other areas of the state may have seen small-to-moderate decreases.

Lawmakers credit themselves for the $140 million property-tax cut and the $23 million sales-tax cut from a year before. But they are more reticent to discuss how they also increased a host of other taxes and fees, and they authorized local governments to increase sales and property taxes by amounts that could - depending on where you live - swallow any and all tax cuts enacted by the tax-cutting Legislature. (See accompanying chart.)

Property-tax frenzy

Clearly, the most significant tax cut enacted by lawmakers was targeted at property taxes. Because property values in many areas have soared by 25 percent to 100 percent in recent years, homeowners were facing the prospect of automatic and proportional increases in the amount of property taxes paid.

The effect of the 1995 property tax cut was not so much to reduce the amount of taxes being paid, but to offset the automatic increase homeowners would have felt had lawmakers not lowered the tax rate.

The effect on your pocketbock varies. If you live in Salt Lake County, where property values have increased dramatically, the amount you paid in property taxes probably increased over the previous year. If you live in Utah, Weber and Davis counties, you probably saw a small reduction because county assessors did a better job of keeping home appraisals in line with market values.

Those living in rural Utah, where property values have not escalated, saw healthy property-tax reductions of 20 percent to 30 percent.

"It's extraordinarily difficult to generalize about who lost and who gained" under the 1995 tax cut, explained State Tax Commissioner Roger Tew. "What is certain is that (property) taxes for everybody would have increased dramatically had the Legislature done nothing."

That's because property taxes are based on the value of property, and Wasatch Front property values have exploded in recent years. Without legislative intervention, there would have been a property-tax windfall.

Explained Thomas Williams, senior economist for the State Tax Commission, the Legislature did not cut taxes so much as they sought to "avoid a tax increase."

For example, say you paid $600 a year in property taxes on a house valued by the county at $75,000 in 1993. But county appraisers in 1994 said your house was now worth $100,000, meaning your property taxes would have risen proportionally to $800.

Faced with a looming tax revolt, lawmakers reduced property-tax rates and reduced the amount of a home's value that is subject to property tax. In Salt Lake County, where property values have soared the most, the legislative action reduced the amount of the increase, but homeowners still paid more, sometimes substantially more.

"It would be incorrect to say that because you paid more that government has more money to spend," Tew said. "If you paid more, it was because somebody else paid less."

But is reducing the anticipated increase in taxes the same as cutting taxes? "It's perception," Tew said. "It was a property-tax cut that didn't look like a tax cut because many people actually paid more. But they paid less than they would have."

But is it a cut? Another way to look at the question, what if you are earning $30,000 a year in salary and the boss says in January he will give you a $3,000 pay raise in December. But in December, the raise is only $1,000. Did you get a $1,000 raise or a $2,000 pay cut?

For those who got increases in their property tax bill, their only solace is that the taxes did not go up more. But it is hard to convince them they got a tax cut, lawmakers agree.

Homeowners who paid more in taxes despite the tax cut did so because it had been so long since county appraisers had reassessed their properties. Consequently, homeowners were paying taxes on properties valued considerably under the market value. When appraisers got around to assessing the real market value, the blistering real estate market had pushed the property values up 20 percent to 100 percent over what they were when last appraised.

"Had we not done anything, the initiatives were prepared to put (property-tax cuts) on the ballot," said Senate President Lane Beattie, adding the initiative's approach, likened to Proposition 13 in California, would have had draconian effects on state government and schools.

Sharing the wealth

State economists agree the only tax cut of any significance in recent years was the 1995 property-tax reduction. But did all Utahns benefit from that cut?

"It's harder to argue that all Utahns benefited, though there are those who will make that argument," Tew said.

In fact, one out of every three Utahns is a renter. And while property-tax increases are typically passed on to renters through increased rents, decreases in property taxes are typically not passed along through rent reductions.

In reality, rents are set by what the market will bear. And along the Wasatch Front, the shortage of rental units has caused the cost of renting available units to soar. It is not uncommon for rents to have doubled in the past few years.

"In the long term, the property-tax cut helped renters because if they (lawmakers) had not acted the property taxes would have gone up significantly and those costs would have been passed along (to renters)," Tew said. "But did rents drop? Absolutely not."

Explained Beattie, "Those who say renters did not benefit from the property-tax cut don't understand tax policy or don't want to. You have to factor in the cost of building rentals, the interest rates and the shortage of available housing. The reason there is a shortage (of rental units) is because it hasn't been profitable to build them. Now, there are hundreds of rental units being built."

As more rental units are built to meet the excessive demand, rental prices will stabilize and could eventually fall. "It takes awhile to trickle down," Beattie said.

Another common perspective is that renters may not have benefited from the property-tax cut, but they aren't contributing property taxes - at least not directly - that pay for the cost of educating their children. That cost, about $3,000 a year per child, is carried by property owners.

Sales-tax merry-go-round

Although property-tax cuts dominate policy discussions, lawmakers in 1994 also lowered Utah's sales-tax rate by one-eighth cent, cutting an estimated $23 million in tax revenues.

Generally, the tax cut did not greatly affect people's pocket-bocks, amounting to about 12 cents saved on every $100 purchase. Officials estimated at the time each Utahn would save about $15 a year on average.

However, the same year lawmakers cheered a one-eighth cent sales-tax cut, they also imposed sales taxes on numerous items and services that had not been taxed previously. Sales by coin-operated vending machines, video games, movie tickets, coin-operated laundromats, car washes, tickets to sporting events and even participation sports like bowling and golf were added to the sales-tax rolls. The action - which lawmakers refused to call a tax increase; rather they called it broadening the tax base and restoring equity - was expected to raise $11 million a year.

In real terms, someone who spends $10 a week washing dirty laundry at the local laundromat would spend about $30 a year more for that privilege just because prices were increased to pay the new sales tax. Someone who purchased a package of 10 pairs of $50 Utah Jazz tickets would pay about $60 more.

Adding insult to injury, lawmakers in 1993 also authorized local governments to impose a 1 percent sales tax for hospitals and a one-tenth of one-percent sales tax for arts facilities. In 1991, they allowed local governments to increase sales tax 1 percent on the sale of meals at restaurants, and in 1990 they authorized local governments to impose a 3 percent tax on car rentals.

"What the Legislature gave, the Legislature took away," House Minority Leader Frank Pignanelli said, adding the sales tax affects the poor to a far greater extent than middle- or upper-income families. Making it worse, Democrats say, is that all Utahns, unlike residents in most other states, pay sales tax on food purchases.

Democrats for years have championed the removal of the sales tax on food, and this year they have been joined by some conservative Republicans. But they likely do not have the votes to make it happen.

"It is a great emotional issue, but the reality is they (the poor) already do not pay sales tax on food stamp purchases," Beattie said. "If we take away food stamps and welfare, I could support taking the sales tax off of food."

Beattie admits some parts of Utah's tax structure are regressive, "but that doesn't mean it's wrong." Rather, the sales tax is a way for all Utahns, rich and poor, to contribute to the cost of paying for government services.

Rep. Marty Stephens, R-Farr West, agrees to a point. "Everybody ought to know that government services cost something and they ought to pay some tax," he said. "But the sales tax is regressive, especially on food, and it ought to be minimalized."

Lawmakers will likely tinker more with the sales tax this year. Sales-tax exemptions granted to Geneva Steel are set to expire next year, and lawmakers are continuing to look at other sales-tax exemptions to determine whether they are warranted or not.

Utah Gov. Mike Leavitt says the fact few exemptions were removed after the initial batch in 1994 demonstrates that most sales-tax exemptions were appropriate in the first place. And he has no regrets about imposing the tax in areas where it had not been collected.

"The process we went through was a good one, but there is never a point where we say we have made a change forever," he said.

For example, Leavitt has looked at one proposal that would eliminate the sales tax on taxi cab service because of its regressive impact on the poor. "They make a strong case," he said.

Even though sales-tax rates were reduced in 1994, the bottom line is that most Utahns, because of increased local-option taxes and more goods and services subject to sales tax, are paying a greater percentage of their disposable income on sales tax today than they did in 1990.

But Tax Commission officials would not proffer a guess as to how much more. It does, after all, depend on where you live and how many local-option sales taxes have been implemented.

Income-tax dilemma

The last time lawmakers tinkered with Utah's income tax was in 1989 when they increased the deductibility of federal taxes on state returns to 50 percent. Since that time, legislators have been reluctant to consider income tax cuts or income bracket realignments - even though most of the budget surpluses of recent years resulted from growth in income taxes.

Critics point to the fact Utah's income-tax structure hits the working poor the hardest. In fact, Utahns are in the highest tax bracket of 7.2 percent after earning only $7,500.

That, says Pignanelli, hurts the working poor and working middle-class families to a far greater extent than the upper-middle-class or wealthy. Restructuring income-tax brackets to make them more equitable is a fundamental premise of the Democratic agenda, and for that reason the idea has little support among majority Republicans.

Leavitt, who has jousted with fellow Republicans over tax policy, is not talking about income-tax restructuring, but he does support extending an income-tax credit that would reimburse families for some of the sales tax they now spend on food.

From a more global perspective, Utahns may have experienced a small decrease in state income taxes in recent years, thanks to President Clinton. Because Clinton's 1993 tax plan raised federal taxes, it also raised the amount of federal taxes that could be deducted on state income-tax returns. More deduction, less state taxes.

Of course, the reduced state income taxes did not compensate for the increase in federal income taxes.

Pay for play

While lawmakers can and frequently do lay claim to cutting taxes, the same cannot be said of their growing propensity to raise the fees state government charges for certain services. In the past few years, most licenses issued by the state have been increased, generating tens of millions of dollars for state coffers.

Many lawmakers argue that fees are not taxes but are direct costs passed to the consumers of particular government services. Not so, says Stephens, co-chairman of the powerful Executive Appropriations Committee.

"It's just a different way of extracting revenue from citizens," he said. "There is basically no difference between the two of them (taxes and fees)."

Stephens has noted a disturbing trend among state agencies that request fee increases ostensibly to pay for specific programs that benefit those who are paying fees. But one recent study indicates that the state Division of Occupational and Professional Licensing generated $4 million more in revenue than it cost to regulate the professions that need regulation.

"No question it's a revenue generator, one that is easier to get through (the Legislature) than asking for a tax increase," Stephens said.

Ironically, when it was suggested that licensing fees be decreased, there was a public outcry against the idea. "They wanted more services for that money," Stephens said.

Fee increases are usually small, affect only a select group of citizens and are generally insignificant amid a $5 billion state budget. But it is the cumulative effect that concerns lawmakers like Stephens.

Not only have tax-cutting lawmakers increased the professional license fees, but they have in recent years added $1.50 to the cost of vehicle registration and $5 to the cost of drivers' licenses - increases that affect almost every adult Utahn.

They walloped building contractors with a $200 annual contribution to a dispute mediation fund, they increased license fees on health-care providers by 950 percent from $50 to $500, they required horse trainers and groomers to cough up $50 to $100 to be licensed, and they raised the cost of virtually all court filings. Even marriage licenses were raised from $30 to $40.

They increased fees for dumping hazardous wastes and spewing pollutants, they increased hunting and fishing licenses repeatedly, they required a recycling fee on tire purchases, and they increased pesticide and brand inspections fees.

In fact, Stephens said he would be hard-pressed to find any segment of Utah society that has not been affected to some degree by fee increases. But no one really knows how much that affect is or whether fee increases have erased the benefits of any property tax cuts.

Furthermore, while lawmakers have championed their fiscal conservatism on one hand, they have quietly increased a number of taxes on the other.

In 1993, they allowed a local-option 2-mill increase in the property tax. In 1991, they increased homeowners' property taxes by 1 percent and businesses' by 3 percent; they also increased cigarette taxes by 3.5 cents a pack. In 1990, they increased the gasoline tax by one-half cent per gallon and they increased the severance tax on copper and metals.

The State Tax Commission collects 29 of these minor taxes, many of which cost more to administer than the amount that is collected.

Tax and cut and cut and tax

There is no question that Utah lawmakers are proud of their fiscal conservatism, although whether they are tax-cutters or tax-raisers depends on your political persuasion.

Few would argue that Utah's economy is booming and that one reason for that growth is a favorable tax structure. But are lower- and middle-income families carrying too heavy a burden? Have tax cuts of the past benefited a select group of citizens at the expense of others?

"We are ripe for some very hot political debate," Leavitt said.

Leavitt believes critics would have a hard time making a case that in the past three or four years that the whole state has not benefited from the booming economy that has flooded state coffers with hundreds of millions of dollars in new revenue.

"There isn't anyone who hasn't benefited in some way," Leavitt said. "If you are poor and on welfare, there have been more tax dollars generated to pay for those services. If you drive a car, the economic expansion has fueled highway maintenance. If you rent an apartment, there are long-term benefits in the costs of rents."

Central to the debate, Leavitt says, is that Utah maintains a broad tax base. In fact, "the broader the base the more equitable it is."

He also argues that state reliance on tax revenues must be balanced among different revenue sources. In other words, the state should not depend too heavily on income taxes alone, or on sales taxes or on property taxes.

"It is an imperfect process," he said. "Tax policy is a balancing act between a lot of unhappy options. It involves politics, economics, a little advanced math and probably a little art."

And it's not always a pretty picture.

*****

ADDITIONAL INFORMATION

Tax history: Utah

1995

Taxes Cut

$90 million property tax cut enacted by raising the home exemption from 32 percent to 45 percent. For the owner of a $100,000 home, the action translated into cuts of up to $250, depending on location.

Averted an automatic $50 million property tax increase due to inflated property values.

Removed the sales tax from mobile homes and home medical equipment.

Taxes Raised

Imposed a $5 habitat fee on all hunting and fishing licenses.

Raised court filing fees by $5 to $25, depending on the court action.

1994

Taxes Cut

$23 million sales tax cut by reducing the tax by one-eighth of 1 percent. The tax cut amounted to about 12 cents on a $100 grocery purchase, or $25 on the purchase of a $20,000 car. One estimate placed the total tax cut at about $15 per person.

Averted an automatic $9 million property tax increase set to occur through Tax Commission refactoring of property values.

Taxes Raised

Imposed a sales tax on on vending machines, video games, taxi service, coin-operated laundromats, movie and sports tickets, bowling alleys and car washes, among other things. The action resulted in a $11.2 million tax increase.

Increased car registration fees by $1.

Required contractors to pay $200 a year into a dispute resolution fund.

Increased the cost of obtaining professional licenses by $1.5 million.

1993

Taxes Cut

None

Taxes Raised

Allowed a local-option 1 percent sales tax for hospitals.

Allowed a local-option 1/10th of 1 percent sales tax for arts facilities and zoos.

Allowed a local-option 2 mill increase in the property tax.

Increased license fees for hospitals and nursing homes to $500 from $50.

Increased hunting fees, primarily on nonresidents.

Required horse trainers to obtain a $100 license, and horse groomers to obtain a $50 license.

Required smokestack industries to pay $5.50 a ton more for the pollutants they spew, generating $750,000 in new revenue.

1992

Taxes Cut

None

Taxes Raised

Car registrations were raised by 50 cents a vehicle, raising $625,000 a year.

Marriage licenses were increased by $10, and other court fees were raised by $5 to $40 each.

Brand inspections increased by 5 cents to 40 cents per animal.

Pesticide fees were increased by $430,000.

Deer hunting licenses were increased by $5 and a $5 upland game stamp was imposed, generating $300,000 to $400,000.

Hazardous waste dumping fees were increased by $6 for in-state dumpers, and by $15 for out-of-state dumpers.

1991

Taxes Cut

Reduced property taxes on multi-county industries by $10 million.

Taxes Raised

Increased homeowners and small business property taxes by $10 million. Homeowners' property taxes went up by about 1 percent and businesses by 3.1 percent.

Drivers license fees were increased by $5.

Cigarette taxes were increased by 3.5 cents a pack.

Allowed local governments to impose a 1 percent meals tax.

1990

Tax Cuts

$1 million sales tax incentive for ski resorts.

$50,000 severance tax credits for each oil well workover.

Taxes Raised

$23 million property tax increase by allowed local school districts to raise their levies by 2 mills.

Imposed a 3 percent county-option sales tax on rental cars.

Raised the gasoline tax by one-half cent.

Imposed a $1-$2 recycling fee on tire purchases.

Raised the severance tax on copper and metals by $2 million.