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Informed decisions: Are Utah taxpayers paying too much or too little?

Local economic experts, education leaders, business executives and other Utah residents say many parts of the state's tax structure are outdated, inefficient or unfair.
Local economic experts, education leaders, business executives and other Utah residents say many parts of the state's tax structure are outdated, inefficient or unfair.
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Editor's note: "Informed Decisions 2016" is a project headed by the University of Utah's Kem C. Gardner Policy Institute and the Hinckley Institute of Politics, in partnership with the Deseret News and KSL Broadcasting, to identify issues and policy to help drive public debate and discussion during this election year. This is the third in a series of articles.

SALT LAKE CITY — Local economic experts, education leaders, business executives and other Utah residents say many parts of the state's tax structure are outdated, inefficient or unfair.

Those and other outlooks were among the findings in six focus group discussions hosted in April and May by the Kem C. Gardner Policy Institute and the Hinckley Institute of Politics at the University of Utah, in partnership with the Deseret News and KSL Broadcasting.

The consensus was that Utah should rethink the way state revenue is generated and how budget priorities are balanced, according to Dianne Meppen, director of survey research at the Kem C. Gardner Policy Institute.

"The current tax system isn't living in the reality of the world we live in," Meppen said. "It needs to be revamped."

The Deseret News previously reported on the findings from the focus groups regarding education and state infrastructure. Those findings, while not representative of all voters, were summarized in snapshots intended to inform voters of key issues in the 2016 election. More detailed reports will be published in August and September.

As a follow-up to the reports, the "Informed Decisions 2016" project will include a series of town hall-style candidate conversations. The first meeting will feature Republican candidates for Utah's 3rd Congressional District, Rep. Jason Chaffetz and his challenger, Chia-Chi Teng.

Jason Perry, vice president of government relations and director of the Hinckley Institute of Politics, will moderate the event, which will begin at 10:30 a.m. Monday at the S.J. Quinney College of Law's Moot Courtroom at the University of Utah.

Tax effort

Contributors to the focus groups said taxes are an issue that permeates all public policy, according to Meppen. Specifically, reforming tax policy to harmonize with Utah's current economy, education and infrastructure needs should be a point of focus for voters, she said.

State leaders have set goals to make Utah a top 10 state in K-12 education performance, for example, though the state consistently remains below the national average in education funding.

In 2005, Utahns contributed about $50 toward education for every $1,000 of personal income, ranking 22nd in the country for the highest funding effort. By 2014, however, that contribution had dropped to just over $40 per $1,000 of personal income, giving the state a national rank of 37th, according to the U.S. Census Bureau.

Some focus group members also see funding earmarks and other policies as having pitted education and infrastructure priorities against each other. While earmarks can provide somewhat steady revenue streams for state projects, they also raise concerns of transparency and need to be reconsidered in light of current priorities every year, they said.

"It shouldn't be automatic," Meppen said.

Participants also found a general willingness to pay more for education, especially if it means achieving better student performance.

While state lawmakers have invested nearly $2 billion of new money into the state's education system in recent years, not all Utahns are in favor of raising income taxes, which is the primary source of the education fund.

"I think education is always going to be a top priority for everybody. I don't see that topic going away," said West Valley Republican Rep. Sophia DiCaro, a member of the focus group study. "However, there is very little appetite to increase taxes to address it, especially income taxes. That's the sense that I've heard loud and clearly."

A 2015 proposal to increase the income tax rate by half of 1 percent was brought before the Legislature but failed to advance to the floor. Lawmakers, however, passed a measure that generated $75 million in revenue by increasing the state's basic property tax rate to equalize funding for schools.

But there are ways around a tax increase, DiCaro said. Lawmakers have considered broadening the tax base by reducing the number of exemptions and tax credits in order to generate more revenue.

"There's a desire to do that more than to increase income taxes," she said.

E-commerce

Revenue for Utah's education fund has remained steady as economic growth is reflected through the income tax. But the general fund, which relies on sales tax, is slipping, largely thanks to consumer patterns shifting toward online sales and intangible services.

Since 2000, e-commerce has gone from representing 0.8 percent of all retail sales in the U.S. to 7.8 percent this year, according to the Federal Reserve Bank of St. Louis.

Currently, only companies with a physical presence in the state where a purchase is made are subject to sales taxes. But thanks to interstate transactions, legislative researchers say Utah's budget is shorted between $80 million and $300 million each year.

"There was a general feeling in the group that it is unfair to brick-and-mortar stores to be taxed when online sales are not taxed," Meppen said. "There was recognition that there is a real loss to Utah in tax dollars that could have been collected.

"If they need the money, they'll find something to tax," she said.

State lawmakers have sought to address the issue for years, but the challenge remains in waiting for federal lawmakers to find a multistate solution in collecting sales taxes.

"As consumer behavior changes, we're seeing more of our tax structure change over time and trending in such a way where general funds will continue to go down," DiCaro said. "The obvious desire is to have the federal government do their job."

Managing success

Despite Utah's taxing dilemmas, focus group contributors generally agreed that the state has recovered well from the Great Recession thanks to actions from state leaders, Meppen said.

Part of the recovery has stemmed from putting revenue aside in savings, paying off debt and refraining from going into further debt. It also is thanks to striking a "good balance" between the tax burden on citizens and building infrastructure, which pulled the state's economy forward toward recovery, according to Andrew Gruber, executive director of the Wasatch Front Regional Council.

"By prudently managing our state's investments, it will help us to continue to have a thriving economy, good air quality and quality of life in the future," Gruber said.

But focus group members were concerned about the fairness of providing tax incentives for large companies in an attempt to further Utah's economic growth. While it may bring more businesses and more jobs to the state, that creates the potential for shifting the burden back on "regular people" to make up the difference, according to Meppen.

At the same time, if larger technology companies paid more in taxes, those costs could still be passed along to consumers.

Just as funding earmarks need to be reconsidered annually, voters and lawmakers should also examine the impact that business tax incentives have on Utahns, Meppen said.

"There is generally an understanding that there are tradeoffs, but with those tradeoffs come concerns," she said.

Email: mjacobsen@deseretnews.com

Twitter: MorganEJacobsen