SALT LAKE CITY — Utah House Democrats offered their own tax reform plan Thursday, calling for imposing higher income tax rates for those earning more than $150,000 and replacing the state sales tax with a gross receipts tax on businesses to add as much as $216 million more to state coffers.
Their proposal comes as the Republican leaders of the Utah Legislature are preparing for Gov. Gary Herbert to call a special session for next Thursday to consider the plan being put together by the GOP-controlled Tax Restructuring and Equalization Task Force that cuts income taxes while adding new sales taxes to food, gas and some services.
What Democrats really are hoping to do with their plan is to stop the special session in favor of taking a longer look at tax reform during the 2020 Legislature that begins meeting in late January, House Minority Leader Brian King, D-Salt Lake City, said.
“It’s clear to us the public is not excited about the task force’s plan that’s currently proposed,” King said. “We do need to reform our tax system, but we think we need to devote more time to getting this right. We owe it to the public to put our state on solid footing for the next century with a a tax plan that is fair, simple and not rushed.”
Teachers and many others have crowded task force meetings to ask that action on tax reform wait until the regular legislative session. They cite concerns that include the impact of an income tax cut on schools, since the Utah Constitution earmarks those taxes for education.
An effort to amend the constitution to remove that earmark, along with an alternative funding source for schools that relies on local school districts to raise an additional $98 million in property taxes annually within five years while providing some guaranteed state revenue, won’t be on the special session agenda.
House Speaker Brad Wilson, R-Kaysville, said it’s “simply not true” tax reform has been hurried. He warned the proposal from the Democrats would undo longstanding tax policies that benefit families and businesses “and strike a blow to the principles that have made Utah strong.”
Task force co-chairman Sen. Lyle Hillyard, R-Logan, also criticized the plan.
“We don’t have a problem with income tax revenue. We have a structural imbalance because the general fund (made up largely of sales taxes) is not growing as fast as the population,” Hillyard said, adding while it would have been “nice to hear” about the proposal sooner, he was open to discussions that address the budget issue.
The task force is set to meet on Monday to finalize the Republican plan intended to give Utahns an overall tax cut, although just how large that will be apparently is still being discussed by the governor, the speaker and Senate President Stuart Adams, R-Layton.
Last session, $75 million was set aside for a tax cut, but that amount has already been boosted to at least $100 million based on adjustments being made to limit the number of Utahns who would end up paying more taxes under the plan.
Now, there’s likely to be extra money available for an even bigger tax cut, with new revenue estimates for the budget year that begins July 1, 2020, set to be released soon by the governor. Wilson has already said income tax collections are projected to grow 10 times faster than sales taxes.
The Democrats’ plan would return the state to a progressive income tax system that imposes higher rates on higher earnings. Utah did away with that type of taxation a decade ago in favor of a single income tax rate, currently 4.95%.
Democrats would either keep that rate in place or drop it to 4.64%, but only on earnings up to $150,000. Money made above that amount would be taxed at 6% up to $250,000; 7% between $250,000 and $600,000; and 8% above $600,000.
Keeping the rate the same for Utahns making less than $150,000 would bring in an additional $466 million in income taxes, according to the data provided by House Democrats, while cutting the rate at the bottom of the brackets would still raise an additional $263 million.
Replacing the 4.85% state sales tax with a 0.9% gross receipts tax on sellers and service providers means the state would collect less general fund revenue, just under $3 billion in gross receipts taxes from businesses compared to nearly $3.2 billion in sales taxes from consumers.
Few states collect a gross receipts tax and some imposed the tax only to repeal it later. Adding a gross receipts tax in Utah was briefly considered and rejected last session when Republican lawmakers were looking for a fix to lagging sales tax collections as consumer spending shifts from goods to services.
The fix they came up with, imposing new sales taxes on a wide array of services ranging from lawn care to legal advice, was scrapped amid protests from the business community in favor of leaving it up to the task force to find a more acceptable alternative.
The net effect of the Democrats’ plan would be either a $13 million increase in state revenues if the tax rate for earnings up to $150,000 is cut or a $216 million increase if that rate stays the same. Up to 99% of Utahns would see a tax cut, according to Rep. Joel Briscoe of Salt Lake City, one of two Democrats on the task force.
King said a progressive income tax plan means “most hardworking Utahns will still see a tax cut, but wealthier Utahns would be asked to contribute a little more,” while making more money available for both public and higher education.
He said moving to a gross receipts tax “also gives most Utahns a huge tax cut on purchases, even as it preserves the solvency of the general fund” and labeled it “fairer and easier to understand and administer because businesses and activities would all pay a little.”
As an attorney, King said he would pay new taxes under the Democrats’ plan — and doesn’t mind doing so.
“This bugs me really a lot. We can’t seem to talk about taxes without whining, complaining or moaning,” he said. “I’m willing to do that and I think the people under our tax proposal that would be in my shoes should and are willing, generally, to do that. And if they aren’t, shame on them. Shame on them.”