Tax Reform Proposals Go on the Road – Much Work Left to Be Done by November 30

by Howard Stephenson

Utah ’s Tax Reform Task Force just concluded a series of town meetings around the state to hear public comment about proposed changes to Utah’s tax system. Prompted initially by Governor Olene Walker’s Recommendations on Tax Structure for Utah’s Future and now by Governor Huntsman’s Tax Reform Recommendations, the Legislature’s Tax Reform Task Force has set forth 32 recommendations from their year-long deliberations. These can be viewed online at: http://le.utah.gov/interim/2005/pdf/00001856.pdf

The Task Force made 19 recommendations regarding sales taxes, 5 regarding income taxes, 2 regarding Redevelopment Agency reform, and 6 regarding property taxes.

The biggest driving force behind the recommendations is the need to improve Utah’s economic climate. By removing the tax barriers to capital investment and higher paying jobs, it is believed that a rising economic tide will lift all boats. While the Walker team had also suggested that broadening the tax base (such as extending sales taxes to services) should be part of the package the Task Force has largely rejected that idea.

I believe the most important proposals center around reducing Utah’s 7% nominal income tax rate to 4% or 5%, enacting an electable single sales factor for Utah corporate income taxes, eliminating sales taxes on equipment and machinery for basic industries, and enacting a single statewide sales tax rate.

The single sales tax rate would eliminate the “boutique” local option sales taxes and allow them to be funded in the future from voter-approved property taxes.

There are currently three “boutique taxes” on the November ballot in Orem, Roosevelt, and Cedar City. The Utah Taxpayers Association has provided several arguments against the approval of these new taxes.

Arguments against the Arts, Parks, and Recreation Sales Taxes

Utah has more pressing needs than funding the arts with tax dollars.
Despite Utah’s high tax burden, state and local governments struggle to adequately fund essential needs such as transportation, education, and public safety. Spending tax dollars on the arts will not create meaningful economic growth, but spending tax dollars on transportation and education while keeping tax burdens under control will promote economic growth.

Our taxes are already too high. Taxes should be cut, not raised.
Utah ’s state and local tax/fee burden as a percent of personal income is third highest in the nation.

Experience throughout the world demonstrates that high tax burdens lead to lower long term economic growth. Instead of raising taxes, state and local governments should be cutting taxes.

Dedicating general tax revenue for specific purposes is bad tax policy.
Government spending needs to be annually prioritized in order to maintain budgetary discipline.

Dedicating or “earmarking” general tax revenues for specific purposes places government spending on auto-pilot and reduces government’s ability to balance budgets without raising taxes or cutting essential services such as public safety.

Sales taxes hurt low income families and those on fixed incomes.
Low income households spend a higher percentage of their incomes on taxable goods and services. As a percent of personal income, sales taxes harm the poor more than anyone else.

Responding to claims made by proponents of the arts tax

Claim: This is just a small tax increase, less than a hamburger per household per week.

Fact: Even so-called “small” tax increases add up. Our heavy state and local tax burden is the result of accumulated “small” tax increases over decades.

Claim : This is economic development because tourists and non-residents will pay this tax and will stimulate the economy by spending in Orem, Roosevelt, and Cedar City.

Fact: Out-of-state tourists account for only 7% of all spending in Utah. Long-term economic growth is achieved by increasing business and worker productivity and by exporting goods and services, not by raising taxes in an attempt to get people to spend more money. In fact, raising taxes reduces disposable income for taxpayers, which reduces consumer expenditures.

Claim : This will not drain money from education and transportation because this is a new tax.

Fact: The tax base is finite. Tax dollars can only be spent once, and dollars spent on non-critical areas like the arts leaves less that can be spent on critical areas like transportation and education.

Claim : A dollar spent on the arts is one less dollar needed to be spent on corrections and law enforcement.

Fact: If this claim were true, and this is dubious, then existing law enforcement and corrections expenditures should be diverted to fund the arts instead of raising taxes.

Claim : When we shop in Salt Lake County, we pay ZAP but don’t get any of the benefits. Now we’ll get the benefit by imposing this tax on ourselves.

Fact: ZAP taxes paid by Orem residents in Salt Lake County will continue to remain in Salt Lake County, regardless of whether Orem imposes its own RAP tax.

Claim : Increasing taxes to promote government spending on the arts increases economic development because people will spend money at the subsidized arts venues.

Fact: Taxpayers will have less to spend annually due to the tax increase. Moreover, since the overwhelming majority of patrons of these subsidized venues will be Utah residents, consumer expenditures at the subsidized arts venues would be discretionary expenditures that are already occurring elsewhere in the state. The tax increase will simply shift existing and future household expenditures from non-subsidized venues to the subsidized venues and will not create new household expenditures that otherwise would not exist. Besides, consumers are already maxed out on spending as evidenced by negative household savings rates.