Utah Legislature Considers Tax Cuts

Published March 1, 2006

The Utah Legislature convened on January 16 to discuss an issue that has been absent from the lawmakers’ agenda for several years: tax cuts.

Gov. Jon Huntsman Jr. (R) has proposed a $60 million tax cut, while House Republicans are proposing a $230 million cut. The House plan would be the single largest tax cut in Utah history. State Senate Republicans are suggesting $100 million in tax cuts. At press time, Democrats had not proposed any tax cuts.

After four years of little or no growth in general state tax revenues, the legislature now faces dramatically increasing revenues as a result of greater economic growth. The governor’s office projects a surplus of $344 million for the current fiscal year and $581 million for the upcoming fiscal year.

Worry About Revenues

Opponents of tax cuts have argued projected tax revenues may not materialize, and thus cutting taxes would be risky.

House Speaker Greg Curtis (R-Sandy) told attendees of the Utah Taxpayers Association’s annual pre-legislative conference on January 12 that if the legislature increases spending so all projected revenue increases are built into ongoing expenditures, the state will have problems if the projected revenue increases don’t materialize. He believes that route is more risky than cutting taxes.

Not everyone in the state supports tax cuts. The Provo Daily Herald, Utah’s most liberal newspaper, argued on January 17, “Putting the surplus into the transportation fund would benefit Utahns a whole lot more than a tax refund that won’t buy much more than a night on the town.”

On a per-capita basis, the House Republican proposal would come to about $370 per family of four for one year.

Several Proposals in Play

The legislature has no shortage of tax cuts to consider. The Tax Reform Task Force proposed more than $321 million in tax cuts on an annual basis, about half of which would come from elimination of the sales tax on food, before its adjournment in November 2005. The 15-member task force was created by legislation and consisted of 13 lawmakers and two gubernatorial appointees. House Republicans have proposed removing the sales tax on food but would increase local sales tax rates by 0.13 percentage points, to make sure local government revenues were unharmed.

Not protected from harm, however, would be Utah businesses. They would pay about $14 million more per year on their taxable purchases, according to the plan. Because sales tax rates would increase, businesses would have to pay more sales tax on items they purchase. And because businesses do not buy groceries, they would have a net tax increase. Consumers also would pay more for non-food items, but consumers can expect a net tax cut because the removal of the sales tax on food would be greater than the increase in taxes on nonfood items.

State Senate Republicans are supporting tax cuts targeted toward promoting economic growth. They propose to reduce individual income taxes and sales and corporate income taxes on businesses that invest, employ, and produce in Utah and export their products and services to other states.

Instead of completely removing the sales tax on food, Senate Republicans support a tax credit targeted to low- and middle-income households to offset the regressivity of the sales tax on food. Removing the sales tax on food would reduce state revenues by nearly $170 million, while the proposed sales tax credit would reduce state revenues by $50 million or less. Opponents of the sales tax credit say it is too complicated and too onerous for many low-income households.

“To prevent excessive and unsustainable government growth, we must significantly cut taxes this year. Cutting taxes is as important as reforming taxes,” said Rep. Greg Hughes (R-Draper), who served on the Tax Reform Task Force and is chairman of the House Conservative caucus.

Mike Jerman ([email protected]) is vice president of the Utah Taxpayers Association.