by Howard Stephenson
When the legislature adjourned sine die on March 1, everyone knew they’d be back in a matter of weeks. The Latin words sine die mean literally, “without day” indicating adjournment without additional days to meet having been designated. But Governor Huntsman in addressing the House and Senate after midnight on the 45th day acknowledged there would be additional days designated in May because the budget work and tax work were not completed. The House and Senate just couldn’t seem to get a common rhythm – especially when it came to cutting taxes.
Privatization legislation died on the House board on the final night of the session, another victim of the tyranny of the clock. Your Taxpayers Association will continue the crusade already advancing in states much less conservative than Utah, to promote privatization of government services where cost-savings and service improvement can be achieved.
The Governor won passage of a major element of his economic development plan, USTAR, the Utah Science, Technology and Research initiative which seeks to capitalize on Utah’s strengths in specific science areas such as genetic research. Investments in university based research are expected to draw the world’s best scientific teams to Utah whose research is designed to spawn high-paying spin-off companies.
We were lucky to get agreement on business tax cuts totaling just under $20 million and a modest 2 cent cut in sales taxes on food. Two important business tax cuts – the single sales factor corporate income tax and the sales tax exemption on mining and IT equipment – were not funded. Both were recommended by the Tax Reform Task Force and the Interim Revenue & Taxation Committee. The House failed to pass a bill which was funded (SB242), the most important tax reform of all, which would flatten Utah’s individual income tax by cutting revenues by $70 million, broadening the base and lowering the rate from the current 7% to 4.95%. Governor Huntsman has promised to call the legislature back into special session in May to address that issue and others.
Others Looking at Utah & Huntsman
Huntsman’s commitment to tax cuts to promote economic growth is being noticed by fiscal conservatives in other states. The Oklahoma Council of Public Affairs (OCPA), for example said this week noted that some governors are using current budget surpluses to cut taxes. “Unfortunately, most cuts this year are gimmicks – such as rebates and narrow credits – rather than reductions to tax rates. State policy-makers seem to have forgotten that the purpose of tax cuts is to promote economic growth, not to buy off special-interest constituencies. Gov. Jon Huntsman of Utah is an exception: He is calling for a cut to the state’s top income-tax rate to ‘send a signal about our commitment to long-term competitiveness.’”
OCPA noted that competitiveness means responding to the rising pressures from mobile capital and mobile workers – the same message Huntsman’s “Brain Trust” has been telling the legislature.
According to OCPA, states which understand economics also understand the need to attract high-paid – and thus high-skilled – labor. “Some states do their best to repel this valuable resource by imposing steeply graduated individual income taxes. New York City’s top individual income tax of 10.5 percent is uninviting compared to the zero income-tax rates in Texas and sunny Florida,” OCPA wrote.
“Mobile capital, for example, is increasingly avoiding jurisdictions that impose high corporate income taxes. Thus, a good use of budget surpluses would be to cut or abolish these damaging taxes, which have huge compliance costs but collect relatively little revenue,” OCPA said.
“A few smart states, including Nevada and Washington, do not have corporate income taxes. Smart, because that policy maximizes state investment by local and incoming businesses. For footloose industries, why invest in California with its 8.8% corporate tax or New York City with its exorbitant state/city corporate tax of 17.6%, when you have the option of paying zero elsewhere?” OCPA said.
OCPA is probably not aware that last year Governor Huntsman called for the elimination of Utah corporate income taxes for precisely the same reasons they describe. This year the next best thing to no corporate taxes – the electable single sales factor failed to pass the Utah Legislature – but your Taxpayers Association is not giving up on this and other important tax cuts for economic growth.