Proposed Sales Tax Increase for Transit and Transportation Has Numerous Problems

Tuesday, June 20, 2006

RE: Salt Lake Chamber Tax Increase Proposal

CONTACT: Mike Jerman, Vice President, 972-8814 or 808-8814 (cell)

Proposed Sales Tax Increase for Transit and Transportation Has Numerous Problems

This week, the transportation lobby requested a special legislative session that would enact legislation enabling counties to increase their transit/transportation sales tax rate to a full 1.0%. The Utah Taxpayers Association opposes this proposal for several reasons.

With this tax increase, our state/local tax and fee burden would move from 4 th highest to 3 rd highest. Utah has a tax burden crisis.

If every county in the state increased their sales tax rate to 1.0% from their existing rates, this would cause taxes to increase by $310 million annually and would be the single largest tax increase in Utah’s history. Although the transportation lobby may initially target the tax increase for four or five counties, history shows that all counties will insist on eventually having authority to enact this tax increase.

Currently, Utah’s state/local tax and fee burden is already 4 th highest. With this tax increase, Utah would pass Maine and move to 3rd highest, behind second place New York and first place Wyoming – which benefits from large severance tax revenues which are exported to consumers in other states.

Sales taxes are government’s way of pretending not to tax us.

Median income Utah family pays substantially more sales tax than property tax (60%). In recent years, the spending lobby has targeted sales taxes because they are easier to pass.

State government expenditures are growing rapidly. Taxes should be reduced, not increased.

The Legislature approved a budget for FY2007 that will be 17.6% higher than the original FY2006 budget. Even despite lean budget years, state budget growth in the past ten years has exceeded inflation and population growth (See March 2006 association newsletter.)

Special session is a bad idea

This is a massive tax increase which needs to be carefully deliberated – and then rejected — in a general session.

The Legislature giveth, and the Legislature taketh away. This tax increase would negate the recent two percentage point reduction in the sales tax rate on food.

The Legislature recently reduced the state sales tax rate on food by 2 percentage points for a total tax cut of $70 million. As a result of this tax cut, a median-income Utah family of four will experience a tax cut of $94 per year. However, the same family will experience a $122 per year tax increase if the transit/transportation sales tax rate is increased from 0.50% to 1.0%. The following chart illustrates these impacts for a family of four for various income ranges.

Calculations by Utah Taxpayers Association based on data from Utah State Tax Commission and Bureau of Labor Statistics’ Consumer Expenditure Report

This tax increase would negate the recent $20 million tax cut for businesses

In the recent general session, the Legislature reduced business taxes by almost $20 million. According to the Tax Commission, businesses pay about 31% of all general sales taxes. Therefore, a total general sales tax increase of $310 million would cause business taxes to increase by $96 million.

Alternatives to the Chamber Proposal

First, growth in vehicle miles traveled (VMT) is growing much faster than population and the tax base. Therefore, reliance on congestion pricing must be the first significant step in addressing Utah’s transportation situation. Congestion pricing must be the primary approach to addressing transportation needs, not a secondary approach. While congestion pricing is a fee and fees are a form of taxation, congestion pricing will slow the growth in transportation expenditures since commuters will have a financial incentive to car pool, telecommute, live closer to work, or find some other way to reduce their usage of roads and highways during peak commuting time. Congestion pricing will also increase efficiency of mass transit since more commuters will have an incentive to use light rail or buses.

Second, the Legislature needs to verify that transit spending reduces highway congestion as much as transit proponents claim and that the proposed transit/transportation plan is the most efficient use of tax dollars in terms of costs and benefits. Transit proponents argue that TRAX ridership has exceeded expectations and that TRAX ridership is the equivalent of one lane of rush hour traffic on I-15, but that is not enough justification. The Legislature needs to independently determine if the benefits of TRAX justify the costs.

Finally, the association supports bonding for preservation of transportation corridors. Purchasing corridors now will save taxpayers millions of dollars in the future.