SALT LAKE CITY — Even though a tax reform package was approved in a special session last month, the unpopular attempt to rebalance state revenues by reducing income taxes and raising sales taxes on food, gas and some services was expected to dominate the 2020 session of the Utah Legislature that begins meeting Monday.
That’s because a citizens referendum that would give voters the chance to repeal tax reform appeared headed for the November ballot, throwing the annual process of putting together a state spending plan for the next budget year into disarray.
And the December bill didn’t deal with two key pieces of tax reform — a proposed amendment to the Utah Constitution to remove an earmark on income tax revenues for education to further increase budget flexibility, and ways to make it easier to replace that funding source, likely through local property tax increases.
But all of those issues were swept off the table last Thursday, with a dramatic joint announcement by Gov. Gary Herbert, Senate President Stuart Adams and House Speaker Brad Wilson that the tax reform bill approved in December would be repealed in the first week of the 45-day session.
The Republican leaders all said another try at tax reform should wait until next year.
Their decision to stop in the face of strong public opposition should been seen by Utahns as a good sign, New York City-based pollster Scott Rasmussen told the Deseret News, but it’s also just a first step in rebuilding trust with voters. This is an election year for all House members and about half of the state Senate.
A new Deseret News-Hinckley Institute poll conducted by Rasmussen found a whopping 68% of Utah voters opposed the key elements of the Legislature’s tax reform proposal, lowering the state income tax rate while increasing the state sales tax on food. Just 17% said they were in favor, and 15% weren’t sure how they felt.
“This is the reason the governor and Legislature are going to be repealing it,” Rasmussen said. “They’ve obviously gotten pushback. This is a very strong, negative response when you have a 4-to-1 ratio like this of favorable to oppose.”
Before the repeal was announced, the longtime pollster said he believed the results were “going to be a big warning to the Legislature and the governor. Instead, it turns out to be just confirming that they did the right thing. Which is a huge thing.”
Rasmussen said the speedy action from Utah officials is not business as usual around the country.
“It’s not terribly common for leaders to respond as promptly as they appear to be responding in this case, which I would say is a positive sign for Utah,” he said. “The fact is, they didn’t fight it as they could have. They made this decision. So it’s a first step, maybe a baby step, but it’s first step. What happens next is more important.”
“We didn’t have the public with us. ... We missed the boat.” — House Speaker Brad Wilson
A total of 1,017 Utah registered voters were surveyed Jan. 15-22 by Rasmussen for the poll for the Deseret News and the University of Utah’s Hinckley Institute of Politics. The poll has a margin of error of plus or minus 3.1 percentage points.
Voters were also asked how closely they’ve followed news reports about tax reform and whether it was true or false that the proposal passed in a special legislative session in December would lower income taxes while raising sales taxes on food.
Fifty-seven percent of Utah voters said they were closely following the news about tax reform, including 20% who said they were paying very close attention. That’s compared to 25% who said they weren’t following the issue too closely, 14% who weren’t paying attention to it at all and 4% who weren’t sure.
More than half of Utah voters, 56%, recognized those key elements of tax reform, the drop in the state income tax rate from 4.95% to 4.66% that was accompanied by new tax credits aimed at families as well as poor and elderly residents, and the boost in the state sales tax on food from 1.75% to 4.85%.
“I think we were always wondering what would happen if the signatures were gathered. But there was never a question in my mind we would have to repeal because of the economics.” — Senate President Stuart Adams
Only 13% of Utah voters answered that question incorrectly by saying it wasn’t true that’s what tax reform would do. But nearly a third of Utah voters, 31%, said they weren’t sure whether the statement about the focal points of tax reform was true or false.
“One of the big mistakes that people who are wrapped up in the world of politics make is they assume that everybody is aware of the issues they are discussing,” Rasmussen said, whether those issues are part of a national debate or at the state level, such as tax reform.
Legislative leaders and other tax reform backers insisted that voter confusion was to blame for the apparent success of the citizens referendum, that if Utahns understood the legislation provided a grocery tax credit for low- and moderate-income residents as well as other income tax breaks, they would support the increased tax on food.
But Rasmussen said nearly three-quarters of the voters who were closely following the issue opposed the tax reform trade-off between income and sales taxes. So, he said, if lawmakers believed a better understanding of the legislation would lead to more support, “they didn’t do a good job of explaining it.”
Wilson, R-Kaysville, acknowledged his role in the failure of tax reform in an email obtained by the Deseret News that was sent to Republican House members shortly after the joint announcement about the repeal was made Thursday.
He wrote he wanted “to be clear that I was leading this effort and I stand ready to take responsibility for this setback. You did everything you could to ensure the economic vitality of our state for years to come. You took important steps to be inclusive and transparent in the process. In retrospect, I could have done some things differently to manage our process and solution for our collective constituents.”
The speaker said in an interview that the lesson lawmakers have learned is that “sales tax on food is clearly something that people don’t like.” He said he personally realized the tax reform legislation was doomed when he overheard referendum supporters at his local Harmons supermarket talking about the food tax.
“Somehow, this very complex problem that we fixed with a very complex solution ... got construed as a tax increase,” Wilson said. “We didn’t have the public with us. ... We missed the boat. I missed the boat as speaker in getting the message out.”
For Adams, R-Layton, that moment came when Harmons and the Associated Foods supermarket chains came out against the referendum and offered supporters spots in stores around the state to gather voter signatures. By last Tuesday’s deadline, they had turned in well over the nearly 116,000 required to qualify for the ballot.
The Senate president said the impact on the state budget sealed the deal for a repeal among Senate Republicans. The tax reform bill called for income tax rates to drop right away on 2020 earnings as well as rebates to be issued to some taxpayers, but the increased sales taxes couldn’t go into effect until April.
So with voters not deciding until November whether to retain or repeal the legislation, Adams said the state could have faced slashing incomes tax collections at the end of the year while falling short more than $100 million in sales tax revenues from the increase on food, wholesale gas prices and some services like pet boarding.
“It was just economically impossible to implement,” he said. “I think we were always wondering what would happen if the signatures were gathered. But there was never a question in my mind we would have to repeal because of the economics.”
Adams, too, said increasing the sales tax on food is off the table for future tax reform discussions.
“One of the big mistakes that people who are wrapped up in the world of politics make is they assume that everybody is aware of the issues they are discussing.” — New York City-based pollster Scott Rasmussen
Utah voters have used the initiative and referendum process to pressure lawmakers on issues before with mixed results, said Adam Brown, a Brigham Young University political science professor and a faculty scholar with the campus’ Center for the Study of Elections and Democracy.
Still, even though lawmakers have had the final say on issues like medical marijuana and Medicaid expansion that were the subject of successful initiatives, Brown said voters should recognize they are having an impact on what’s ultimately approved.
The tax reform referendum is no exception he said. In 2011, when there was a public uproar over changes made by lawmakers to Utah’s open meetings law and a referendum was launched by a coalition of liberals and conservatives, Herbert quickly called a special legislative session to repeal the law.
“They are very effective ways of influencing — but not setting — policy,” Brown said of both initiatives and referendums. “So voters can count it as a victory. If they don’t get everything they want they should at least be able to see the presence of these options can be something of a ‘gun behind the door.’”