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Bob Bernick Jr.: Expect a lively debate over Utah tax cut

SHARE Bob Bernick Jr.: Expect a lively debate over Utah tax cut

Utah's economy is going through another growth spurt.

State tax revenues hit an all-time high surplus in June, topping $350 million in the state's two main funds.

The Republican-dominated Legislature in February adopted a fiscal year 2006-07 budget that grew by more than 17 percent — much higher than population and inflation.

Just as the GOP-controlled Congress is overseeing record federal budget deficits, in Utah supposedly conservative Republican legislators are spending like . . . well . . . drunken sailors, as one House Republican put it.

But even as Utah conservatives are talking about controlling state government spending, citizens are not happy that lawmakers didn't fully fund human service programs like emergency dental care for the poor and disabled or the children's health insurance plan.

Up and down the Wasatch Front, drivers are angry as they sit in seemingly endless traffic jams.

And St. George and Cedar City residents are approaching water shortages, hopeful for funding for a $300 million pipeline from Lake Powell.

Under all these monetary pressures, the Legislature will likely meet in the next few weeks to discuss cutting the state's personal income taxes and "reforming" the system by offering an optional flat-rate tax.

The Utah Tax Commission says in fiscal 2006 the state took in $2.28 billion in personal income taxes, a whopping $162 million more than estimated. Income taxes grew by nearly 18 percent from June to June, when state economists guessed only a 9.6 percent growth rate.

By law, all personal and corporate income taxes go to higher and public education. With a teacher shortage upon us and more than 100,000 new students coming into public schools over the next decade, one would think that such tax growth would be welcomed.

And of course it is.

The tough political question, however, is what to do with all this money.

It's tough for so-called fiscal conservative legislators to just keep spending.

Record state tax surpluses should lead to record state tax cuts, says Rep. Greg Hughes, leader of the Conservative Caucus within the Utah House's 56-strong Republican majority.

Hughes sponsored a bill several years ago that reworked the state's spending limitation law — first enacted 20 years ago when then-Gov. Norm Bangerter faced a tax revolt after pushing through the largest tax hikes in Utah's history to adequately fund education.

Hughes' new law exempts public education and transportation from any spending limit caps.

But it does limit growth in the state's general fund, made up mainly of sales taxes that pay for most non-education state spending.

Hughes says that the general fund can grow by only $12 million before it hits the 2006-07 budget year's cap. Historically, in good tax revenue times, legislators open the current year's budget during the general session and spend some of the rising tax surplus. He fears that Democrats and moderate Republicans will try to suspend and/or change his spending cap law to allow for growth greater than $12 million.

Meanwhile, conservative legislators say they want to increase the personal income tax cut above the already agreed upon $70 million level. (The 2006 Legislature already has given a food sales tax cut of $70 million and a business tax cut of $20 million.)

While prepared bills for a mid-September special session will cut only $70 million from income taxes — a number picked during the 2006 general session — amendments could be passed to give greater tax relief.

Indeed, the Option C dual tax system tentatively put forward by Gov. Jon Huntsman Jr. would, in fact, increase that $70 million tax cut to $122 million. Option C places the flat-rate income tax at 5 percent, a level Huntsman has always pushed.

A $70 million tax cut would put that rate at around 5.25 percent.

All this may sound confusing. But what has become politically very clear to Republicans and Democrats alike is that just weeks before the November final election, Democratic and moderate Republican legislators, in the middle of their re-election campaigns, could be forced to make tax-cutting votes that they are uncomfortable with.

I mean, how do you explain to taxpayers/voters that you voted against a $120 million tax cut when just weeks before the state took in $350 million more than anticipated?

Before this year, the largest tax cut in Utah's history was given in 1996 — $131 million, mostly in property taxes.

That year, former Gov. Mike Leavitt was seeking re-election for the first time. Like all politicians, Leavitt wanted happy voters. And Leavitt went on to win re-election with more than 70 percent of the vote, a modern-day record.

Huntsman is not up for re-election until 2008. But all 75 House seats and half of the 29-member Senate are up this November.

Expect a lively debate over the size of the tax cuts when legislators meet in September.

Deseret Morning News political editor Bob Bernick Jr. may be reached by e-mail at bbjr@desnews.com