Utah lawmakers face a difficult challenge in reforming taxes to reflect a changing economy. The bill they passed in a special session Thursday certainly shifts the tax burden, but it isn’t close to being the final, complete solution.
For one thing, the bill leaves education hanging, and that’s not a good situation in a state where large families already place heavy burdens on classrooms and teachers.
Lawmakers cut the flat-rate income tax from 4.95% to 4.66%. In Utah, all income tax receipts are earmarked for public and higher education, so the cut is a direct hit on schools. And while legislative leaders already are working on ways to get more money to schools during the upcoming 2020 regular legislative session, possibly through property taxes, educators are understandably worried.
As with all tax decisions, the things a state chooses to tax and exempt make strong statements about values and philosophies. The bill increases the state’s portion of the sales tax on food from 1.75% to 4.85%. It’s easy to understand why. Of all the things one could apply a sales tax to, food is one of the most stable. People aren’t likely to purchase less of it. But a tax on groceries obviously will place the biggest relative burden on low- to moderate-income earners, making this decision highly regressive.
Lawmakers sought to remedy this through one-time checks, totaling as much as $200, early next year, which will be sent to the lowest earners in the state. They also approved a grocery tax credit in mid-2020. In the long run, however, one-time checks and yearly credits won’t erase the regressive nature of this decision, nor the message it sends to the poor.
Lawmakers also made value judgments in deciding which services to saddle with a sales tax and which to exempt. The list kept getting shorter as negotiations continued. The final list included newspaper subscriptions, which also sends a subtle message about how lawmakers value a free press. With newspaper subscriptions dwindling nationwide, this certainly can’t be seen as a long-term solution to lagging sales tax receipts.
Originally, tax reform was supposed to be extended widely to services in an effort to reflect changing consumer purchasing patterns. A broadened tax base would allow sales tax rates to decline.
But the final bill taxes only a handful of services, which leads to questions about its long-term effectiveness in mitigating lagging sales tax receipts.
Lawmakers also voted to apply the sales tax to gasoline purchases, while acknowledging this as a temporary remedy, given how fuel-efficient cars and alternative fuels are leading to fewer gas purchases. Again, that is a decision with dubious long-term effects.
In the end, we must acknowledge that effective, comprehensive tax reform is a mammoth undertaking for any political body. Utah lawmakers deserve credit for facing a changing economy head-on and beginning to make difficult decisions.
They deserve credit, as well, for increasing the dependent exemption to compensate for changes in federal taxes. They also voted to continue a $6 million earned income credit aimed at ending intergenerational poverty, which is doing much to end the cycle of poverty.
But the special session amounted to a job half done. Lawmakers now must dedicate themselves to a regular session that makes education whole. They also should keep at the task of stabilizing the tax base, and that includes re-examining all current sales tax exemptions and earmarks.
Above all, they should remember that each tax decision is a value judgment, and those ought to reflect the things Utahns value.