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The food tax may have doomed Utah tax reform

Tax reform is needed, but leave groceries alone 

Craig Fox and Erin Houlberg are helped by checker Crystal Rodriguez at Winegars in Bountiful on Tuesday, Feb. 14, 2017. Senate leaders said Tuesday that restoring the full state sales tax on food purchases remains an option this session to counter a proposed education funding initiative, even though tax exemptions will likely be studied over the interim.
Craig Fox and Erin Houlberg are helped by checker Crystal Rodriguez at Winegars in Bountiful on Tuesday, Feb. 14, 2017. Senate leaders said Tuesday that restoring the full state sales tax on food purchases remains an option this session to counter a proposed education funding initiative, even though tax exemptions will likely be studied over the interim.
Scott G Winterton, Deseret News

It wasn’t that Utahns didn’t understand the problem.

People get that sales tax revenues, in a changing economy, aren’t growing as fast as income tax revenues, and that the state constitution handcuffs lawmakers by requiring all income taxes go toward schools.

It wasn’t that Utahns misunderstood all they have to gain through the tax reform bill lawmakers passed in a special session last month. The flat rate income tax dropped from 4.95% to 4.66%, and despite increases in several other taxes, experts said most people would see a net reduction in what they pay state government.

No, the remarkable collection of signatures on petitions seeking to overturn that tax-reform law was all about one thing — the poor.

That says a lot about the people of Utah, and about the tone deafness of many in the state Legislature.

Organizers of the petition drive told the Deseret News they collected at least 152,000 signatures before Tuesday’s deadline. If true, this is remarkable because, while state law gives citizens the right to overturn newly passed statutes, it gives them precious little time to do so. It’s also remarkable because the drive needed only about 116,000 signatures, divided proportionally among 15 of the state’s 29 counties.

We may never know whether the referendum qualified for November’s ballot, because the realistic threat of that was enough to get the governor, the Senate president and the House speaker to issue a joint statement Thursday promising to present a bill on Monday to repeal everything they passed last month.

This was a practical move. The only other option would have been to let the law take effect for what likely would have been only a short time, triggering tax hikes, tax cuts, tax credits and one-time checks to people with qualifying incomes, then reversing it all.

But there were hints in that statement that politicians understood what the public told them through the petitions. They said, “... it has become clear that many people have strong concerns regarding legislation passed in December …”

Why was this about the poor? The tax reform package would increase the state’s portion of the sales tax on food from 1.75% to 4.85%. Many lawmakers have been itching to do this for years, virtually ever since former Gov. Jon Huntsman Jr. pushed them to lower the tax more than a decade ago. But it was a gross miscalculation of the public’s wishes.

How do we know this was about the poor? The petition drive didn’t really gain steam until major grocery chains — Harmons and Associated Foods — allowed their stores to be used as places to gather signatures. The connection couldn’t be more clear.

Harmons Chairman Bob Harmon understood this, which is why he became emotional at a news conference Tuesday. “We got behind this thing because we felt there could be something better,” he said.

Designing effective tax reform is hard, and the food tax always represented, if you’ll pardon the food pun, low-hanging fruit. In recent years, lawmakers have explained to me how, during a recession, food remains one of the few items the state can count on people buying consistently. It’s a stable revenue source. Always, they promised the poor would receive tax credits, and in this case one-time checks for as much as $200, and that the extra money collected would go toward programs that help the poor.

But those arguments sounded like they came from people who never had to count pennies, or at least had forgotten what it was like. Tax credits at the end of the year don’t help much when you need food now. One-time checks are nice, but they don’t represent long-term solutions. And why do we have to tax the poor in order to help the poor?

To be sure, the poor who qualify for food stamps and other government assistance programs always were beyond the scope of this argument, provided they know how to access those programs. This tax hike was directed more at the struggling families who earn just enough to stay beyond the reach of assistance. Why should they be targeted as insurance against recessions?

Three years ago, I thought we had seen the last of these attempts to raise the food tax after the experts told lawmakers food sales were just 11% of all sales taxes collected, and that the extra tax would raise only about $175 million. But the idea just wouldn’t die.

Maybe now the end finally has come. Lawmakers, who now must begin again to craft a reform package, ought to have gotten this message, at least.

Tax reform is needed, but leave groceries alone.

Editor’s note: This column has been updated to reflect a Thursday morning statement from Gov. Gary Herbert, Senate President Stuart Adams and House Speaker Brad Wilson announcing tax reform will be repealed in the 2020 legislative session.