As growth in state government revenues began to decelerate due to an
economic slowdown, Gov. Huntsman and the Utah Legislature were less
inclined to cut taxes in the just completed General Session of the Utah
Legislature than in recent years. The 2008 Utah Legislature ended up
cutting some taxes slightly while increasing others slightly, with no
significant net benefit to taxpayers except for the projected state
revenue loss of approximately $67 million due to the rebates associated
with the federal economic stimulus package.
While this year Utah enjoys one of the largest revenue surpluses in
state history, revenue forecasts suggest the economy is slowing. Without
strong revenue growth, the Legislature initially did not expect to have
funds available to expand the state’s transportation system. However,
before the session ended legislators agreed to fund some of these
transportation choke-points by increasing the statewide sales tax by
.05%, or $21.9 million statewide. This tax increase was offset by $18.7
million in deductibility of health insurance premiums paid by
individuals (employer-paid health insurance premiums are already
deductible), $2.8 million extension of 2007 tax cuts to real estate
investment trusts, and $2 million sales tax exemption for railroad fuel.
The legislature also set aside $100 million in one-time education funds
to ensure that education has funds available to prevent spending cuts if
the downturn deepens.
Legislature’s Tax Cutting Record
Tax cuts from 2005 to 2007 totaled $407 million, including local impacts
of sales tax exemptions and reduction in municipal telecommunications
license tax,. About 85% of these tax cuts, including cable TV
equalization and the second gross receipts tax repeal, directly
benefited individuals while 15% of these tax cuts, including one-third
of the reduction in general state sales tax rate, directly benefited
businesses.
The accompanying table summarizes the tax cuts for the 2005, 2006, and
2007 General Sessions. In the 2002, 2003, and 2004 General Sessions,
Utah increased taxes by nearly $60 million.
Tax cuts offset somewhat by increased local tax authority
While the Legislature was busy cutting taxes at the state level during
these years, it was also busy increasing taxing authority at the local
level.
On the last night of the 2005 General Session the Utah Legislature
authorized counties to increase motor vehicle registration fees by $10
per year, with revenues earmarked for corridor preservation. If every
county imposes this new tax, total statewide impact would be about $17
million, but most observers expect the increase will be about $14
million, since many rural counties will not impose the new tax.
In the 2006 Fourth Special Session, the Legislature authorized counties
to impose an additional 0.25% increase in sales tax rates to fund roads
and rails projects. If all counties impose this tax, the statewide
impact would be $116 million annually. Based on historical trends,
taxpayers can safely assume that all Wasatch Front counties will
eventually adopt the 0.25% sales tax increase.
Some argue that increasing local sales tax authority wasn’t really a tax
increase because the Legislature prohibited property tax for light rail
and commuter rail. However, the main purpose for authorizing the 0.25%
sales tax increase was concern that voters would not approve property
tax increases for light rail and commuter rail.
*Will Legislature raise taxes in 2009 and 2010?*
Historically, the Legislature has raised taxes in bad times and cut
taxes in good times. In the economic downturn of the mid-1980s, Utah
raised taxed by about $150 million, which is more than $500 million in
today’s economy. In the economic downturn that occurred earlier this
decade, Utah raised taxes by a much smaller $60 million.
Economists are already talking about a “v-shaped” recovery. We hope
they’re right, but we heard this one back in 2001. By 2003, legislators
were joking about an “L-shaped” recovery. Fortunately, the Legislature
resisted calls to immediately dip into rainy-day funds and substantially
raise taxes.
If the economic downturn ends up being worse than currently expected,
Utahns can expect the Legislature to increase local sales tax authority
for transportation, especially since passing this decision off to voters
is a lot less politically painful for legislators than voting for tax
increases on the floor of the House or Senate. |
