SALT LAKE CITY — The controversial tax reform package that sparked a referendum to let voters decide whether to raise sales taxes on food, gas and some services while reducing income taxes will be repealed instead by the Utah Legislature, state leaders announced Thursday.
“We applaud those who have engaged in the civic process and made their voices heard. We are not foes on a political battlefield, we are all Utahns committed to getting our tax policy right. That work is just beginning,” Utah Gov. Gary Herbert, Senate President Stuart Adams and House Speaker Brad Wilson said in a joint statement.
Shortly after the statement was issued, the governor told reporters during the taping of his monthly news conference on PBS Utah that it’s probably time to push “pause” on tax reform during the upcoming session and wait until next year to take up the issue again.
“I think we’re accommodating the will of the people,” Herbert said, rather than engaging in “some kind of big fight here. We’re all Utahns. We want good policy on everything, including tax policy. So the fact that we have pushback means we have not done our job as far as convincing the people this is the right thing to do or the right way to do it.”
Fred Cox, the former Republican state lawmaker who led the referendum effort that is still awaiting final qualification for the ballot, stopped short of declaring victory, but said “it appears the Legislature and the governor are listening, finally,” to the more than 152,000 Utahns who signed petitions.
“We will not negotiate the will of the people. If the (Utah Legislature) surrenders, that is up to them. We still want the signatures to be verified. We want the process to continue. If the Legislature does a full repeal and the governor signs the repeal bill, it would appear there would be one less item on the ballot this fall,” Cox said.
The governor said the plan put together by a legislative task force and approved in a special session last month “became a lot more complex” than his initial proposal to extend sales taxes on nearly all services, but added that he believes lawmakers acted in “good faith.”
In a meeting with Adams, R-Layton, and Wilson, R-Kaysville, Herbert said options other than repeal were discussed, but the decision was made to introduce a bill to repeal the tax reform legislation at the start of the 45-day session of the Utah Legislature that begins Monday.
The hope is that the repeal can be signed into law by Herbert before the first week of the session ends, so lawmakers will be able to put together a state budget without what the joint statement called “the uncertainty of a referendum potentially changing the tax code midway through the budget year.”
The governor said the only real difference in the budgeting process will be that lawmakers have an additional $160 million to spend or set aside for future needs.
“Who knows what the Legislature will do,” Herbert said. “But my belief would be it’s probably not only push the reset button but maybe the pause button. Let’s take a breather. Let’s see, let’s reflect on where we’ve been and what we’re trying to do and see if there’s a better way to do it.”
While the governor said he doesn’t “know that there’s going to be a lot of energy to say, ‘Let’s jump right back into the fire here and create some new policy,’” he acknowledged “there’s a need and a demand and I think a desire to give a tax cut.”
Wilson told the Deseret News he remains committed to giving Utahns a tax cut, but said it would be “more prudent” for that to be part of a future tax reform proposal. That won’t come this session, the speaker said, because lawmakers “need some space” before tackling tax reform again.
“We will wipe the slate clean when the time is right,” Wilson said, but it likely won’t be until the 2021 Legislature.
Adams also said another attempt at tax reform should wait. With Herbert not running for reelection after more than a decade in office, the Senate president said he’d like to have the state’s new governor, who won’t be elected until November, participate in the process.
“I think that’s probably a better process,” Adams said.
In the joint statement, the governor and legislative leadership didn’t address a timeline for starting over on tax reform.
“We will take time to reset and address this issue in the future in a way that allows all Utahns to fully understand the challenge we face, engage in the debate over the best solutions and, ultimately, enact policy that best positions Utah for decades to come,” their statement said.
Backers of the referendum to get tax reform on the November ballot so it could be repealed by voters announced Tuesday that they had exceeded the requirements of collecting nearly 116,000 voter signatures distributed proportionately among at least 15 of the state’s 29 counties.
As of 5 p.m. Thursday, the state Elections Office reported that 95,322 voter signatures had been verified.
State Elections Director Justin Lee said county clerks will continue verifying signatures through their Feb. 4 deadline. But Lee said the Legislature is being asked to clarify what should happen if the tax reform bill is repealed and the referendum succeeds in qualifying for the ballot.
Tax reform was vulnerable to a referendum effort because the bill failed to pass with more than a two-thirds majority in both the House and Senate during last December’s special legislative session. That meant it could not take effect for 60 days.
However, a recent change in the state’s referendum law didn’t allow the governor to put the law on hold until after voters had additional time to remove their names, so the bill could have become law for a month or so and triggered provisions including requiring rebate checks to go out to low- and moderate-income Utahns.
The tax reform package was put together by a task force created during the 2019 Legislature after legislative leaders and the governor scrapped a bill that would have imposed new sales taxes on a wide range of services, ranging from hair cuts to legal advice.
The intent of tax reform was to adjust what is seen as a budget imbalance between the state’s two key sources of revenues, income and sales taxes. Growth in sales tax revenues have been lagging behind income tax collections as consumer spending shifts from goods to services.
That’s created a budget issue because under the Utah Constitution, income taxes can only be used to fund education. Sales taxes must cover the cost of the bulk of the rest of the budget, including public safety, health care and other needs.
Raising the sales tax on food from the current 1.75% rate to the full 4.85% state rate seemed to draw the most opposition. Harmons supermarkets came out against tax reform and allowed referendum supporters to gather signatures in their stores around the state.
Republican candidates for governor also opposed the referendum, making it a campaign issue, including former Gov. Jon Huntsman Jr., who worked with lawmakers in his first term to pass tax reform that included lowering the food tax and establishing a single state income tax rate.
“I think this is really the responsible thing to do,” Huntsman said of the decision by Utah leaders to repeal the Legislature’s latest tax reform effort. “I know how difficult this is.”
Lt. Gov. Spencer Cox said he “tried to warn legislators about this. Anybody that would listen to me, I said this is a bad idea.” The candidate said the referendum reflects concerns voters have had about other issues like medical marijuana that they attempted to address through the initiative process, only to see lawmakers step in.
“You can only do that so many times before people start losing faith in what’s happening,” Cox said.
Another candidate for governor, former House Speaker Greg Hughes, said the grassroots referendum effort was “unmatched” and should be a reminder that the public “is the boss.” Hughes said Herbert should have been “out front and leading on this type of reform, if it was worth doing.”
Thomas Wright, a former Utah GOP chairman, said had he been governor, he would not have called the special session on tax reform because the bill was not ready ahead of time to be reviewed. “Had the bill been presented to the public before the special session was called, a lot of these concerns would have been heard,” Wright said.
Salt Lake County Councilwoman Aimee Winder Newton said if she’d been governor, she would have been talking about the need for tax reform years ahead of the special session. “It is always best to listen to everyday Utahns — not just when threatened with a costly referendum,” Winder Newton said.
Businessman Jeff Burningham said the repeal is “a huge victory for the people” and that the way tax reform was passed “demonstrated the dangers of groupthink. It’s standard operating procedure for politicians to manufacture a crisis in order to ram unpopular legislation through the process.”