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Tax-cut compromise falls apart

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A proposed compromise on tax cuts fell apart Thursday when Senate Republicans refused to budge from their opposition to taking the sales tax off food.

With the 2006 Legislature set to end March 1, both House Speaker Greg Curtis — the main legislative advocate for removing the food tax — and a spokesman for Gov. Jon Huntsman Jr. said there is still plenty of time to settle on a tax-cut package.

But if Thursday was any indication, they will need every one of those days.

"We recognize this is a complex negotiation, and we are still optimistic," said Mike Mower, the governor's deputy chief of staff and spokesman. "We're still very supportive of the compromise package, and we'll continue to work with individual Senate and House members as well as their leadership team."

Mower said the compromise brokered by the governor — taking the state's share of sales tax off food and lowering the top income tax rate from 7 percent to 5 percent — remains "one of our top priorities."

Curtis, R-Sandy, said House and Senate Republican leadership had come to an agreement Thursday morning on "broad foundation pieces" for the budget, including a compensation package for state employees. But Senate President John Valentine, R-Orem, said the agreement was only about salaries.

But by Thursday evening, when the leadership from both houses met as the Executive Appropriations Committee, it was apparent that both sides were frustrated. All that the committee approved was the revised revenue estimates, increased fees for state agencies, and intent language and budget reallocations for all of the appropriations subcommittees except Commerce and Revenue, which was voted down by House Republicans without explanation.

Along with the lack of votes, the meeting carried an abnormal tension. The Senate Republicans, who caucused for a second time in the afternoon, arrived late and then waited more than 20 minutes for House Republicans to arrive. Then there was very little debate, and about the only substantial discussion was between Curtis and the committee co-chairman, Sen. Lyle Hillyard, R-Logan, who sniped at each other because of a request from Curtis to move through the motions a little more slowly.

After the meeting, House Republicans left quickly, while Senate Republicans remained seated and looked almost stunned.

The compromise, which stalled after being reported Thursday by the Deseret Morning News, totals about $190 million. The House GOP caucus supports a $230 million tax cut, but the package is nearly double the $100 million backed again Thursday by Senate Republicans.

What agreement did exist seemed to fall apart in the caucus meetings. Neither the Senate nor House moved from its position, and they even seemed to strengthen their respective stances.

"We have not left our caucus position for a $230 million tax cut," Curtis said.

Senate Majority Leader Pete Knudson, R-Brigham City, said members of the Senate GOP caucus also remained steadfast in their support for a $100 million tax cut and some type of tax credit to offset the estimated $75 a year that Utahns pay in sales tax on food.

"You can safely say that the Senate is solidly where we've been for a long time," Knudson said after the first of two caucuses.

The governor, Curtis and Valentine have been discussing the compromise package for several days. It was the subject of two meetings of joint leadership held before Thursday's majority party caucuses.

Taking the sales tax off food, even just at the state level, would "create more problems than it solves," Knudson said. The issue is that too much money would be taken out of the state budget, given the $166 million price tag.

But that is exactly what House conservatives want — taking more money out of the budget via tax cuts and road building.

"We're still very concerned" about the growth in government, Rep. Greg Hughes, R-Draper, said Thursday. Hughes, Rep. Craig Frank, R-Pleasant Grove, and other members of the new Conservative Caucus in the House want less spending than Republican senators apparently favor. The caucus leaders say the House should cut even more than the $230 million all of the House Republicans have agreed upon.

But Valentine said a $100 million reduction would be "the largest tax cut we've ever seen in the state. We're really concerned about the funding of education and the funding of roads."

Valentine said the Senate will caucus again today to focus on the income tax portion of the compromise. He said Sen. Curt Bramble, R-Provo, was putting together some alternatives that would be presented to the caucus.

Bramble said he would be looking at the way the proposal treats mortgage interest and charitable contributions, as well as other credits. The compromise would have given taxpayers a 50 percent credit for those expenditures.

Senators have said repeatedly the problem with the governor's tax reform plan is that there are both winners and losers. The changes the Senate Republicans want to consider would lessen the blow on the those who would pay more tax under the governor's plan, the so-called losers.

But they would also affect the stability of the plan, Bramble said, calling that a trade-off. Huntsman has called the plan a "flatter, fairer, simpler" tax system that will stabilize the source of funding for education, income taxes.

Contributing: Bob Bernick Jr.

E-mail: lisa@desnews.com; jloftin@desnews.com