howardnlby Howard Stephenson
Because the Utah Legislature will convene today, January 19th for a 45-day general session let’s remember a famous quote attributed to Benjamin Franklin, “No man’s life, liberty or fortune is safe while our legislature is in session.” It is also good to remember the words of Otto von Bismark, “Laws are like sausages, it is better not to see them being made.” Nevertheless, we are sure to see the sausage-making discussed frequently in the news until the legislature ends at midnight on March 4.

If you want to avoid the filtered news from major news providers and monitor the legislature yourself, you can go online at www.Utah.Gov , click on the legislature button and listen to live floor debate and live streaming audio coverage of many committee hearings. You can get direct access to all legislation under consideration and send emails to your own legislators or the entire 104 legislators.

The 2004 legislative session will be the third consecutive session that lawmakers will be facing intense pressure from the spending lobby to significantly increase household and business taxes. When compared to the last serious fiscal crisis of the late 1980s, the Legislature has behaved responsibly by forgoing general tax increases.

However, the 2003 Legislature did approve a new sales tax on satellite and cable TV that raises $14 million for the state and $6 million for local government. This tax is under attack this session and may be repealed.

Here is a summary of the major tax bills that are known to be filed at the legislature. Other bills will surface as the session progresses.

The Good Bills

Restricting Special Elections. Sen. Curt Bramble (R-Provo) is sponsoring a bill that would limit bond elections to two times a year, the November general election and the June primary election. Currently, local governments can hold bond elections five dates each year: February, May, August, November general election, and the June primary. Ideally, Bramble’s bill should restrict bond elections to the November general election only, but the proposed twice-ayear rule would be a significant improvement over the status quo.

With few exceptions, local governments have consciously avoided holding bond elections in November in order to minimize voter turnout and maximize the impact of small groups who stand to gain from the bond’s passage. The larger the bond amount, the less likely the election will be held in November. Traditionally, opponents of this legislation have argued that local governments need to have the option of holding bond elections during various times of the year in order to take advantage of low interest rates. However, a review of bond elections held during the past ten years shows no correlation between bond election timing and interest rates. Additionally, school districts have been proposing massive bonds—in many cases over $100 million—that are to be issued in several phases over a long time period, making the interest rate timing argument moot.

Using New Revenues to Reduce Taxes. There will also be legislation to continue implementation of sales taxes on purchases by Utahns from out-of-state vendors. I have proposed an amendment that will make the implementation of the tax on remote sales revenue neutral. Under current law, the remote sales tax becomes effective on July 1, 2004. Initially, state and local governments are expected to receive about $2 million annually from the remote sales tax. As implementation of the remote sales tax expands nationwide, revenues for state and local governments in Utah will become substantial, surpassing The intent of the remote sales tax was not to increase government revenues but to address the inequity between consumers purchasing identical products and businesses competing against each other while taxing some purchases but not others.

Despite claims by the spending lobby, the sales tax base is not shrinking due to increased remote sales or due to a switch to a service-based economy (we still are purchasing manufactured goods even though more and more of us are employed in the service sector). Since 1990, Utah’s sales tax base has increased 127% despite the current recession. This growth is well in excess of inflation and population growth combined (91%).

The spending lobby also claims that the remote sales tax is not a tax increase since taxpayers have been expected to pay this tax for the past several decades. Nevertheless, the state has never balanced its budget with these revenues while taxpayers have had to balance their household budgets while paying these dollars.

Expansion of Manufacturing Sales Tax Exemptions. Exempting business inputs from taxation is sound tax policy, and Sen. Leonard Blackham (RMoroni) is sponsoring legislation that would exempt from sales taxes equipment used in biomass and waste coal energy facilities. Since such facilities have yet to be built in Utah, the “cost” of this exemption will be zero.

Repeal Cable & Satellite TV Tax. Rep. Greg Curtis (R-Sandy) is proposing to repeal last year’s sales tax on cable and satellite TV subscriptions. Earlier this year, the State Tax Commission ruled that federal law prevents local taxation of satellite TV subscriptions (but apparently allows state taxation of satellite). To prevent an unlevel playing field between cable and satellite providers, Curtis is proposing a removal of the tax.

The Bad Bills

Income Tax Hike. Legislators are proposing numerous tax increases. Rep. Pat Jones (D-Salt Lake City) and Rep. Steve Mascaro (R-West Jordan) are proposing a $46.3 million increase in income taxes. The bill makes four major changes to Utah’s income tax: 1) implementation of a state earned income tax credit, 2) a one-time increase in state income tax brackets, 3) ongoing inflationary adjustments to income tax brackets and 4) a reduction and phase out of dependent exemptions.

Most discussion over the past several months has focused on item five. Currently, personal and dependent exemptions for state income taxes are equal to 75% of the federal exemption. If the Jones-Mascaro tax is approved, each household would be allowed to claim two exemptions at 75% of the federal, one at 50%, and one at 25%. Families would not receive exemptions for children beyond the fourth child. Supporters of the bill argue that large families should not pay less income taxes than small families when large families are burdening the public school system.

The concept the sponsors have sold it on is, ‘if you have more children in school, you pay more,’ but the biggest cash part of the bill is increasing taxes on those making more than $50,000 per year. As Representive Greg Curtis said, “It’s a significant tax increase and it has nothing to do with whether you have children in school.” Taxpayers should oppose the Jones-Mascaro tax for at least two reasons. First, it is a net tax increase, even though supporters of the bill are calling it a “tax shift”. Second, families who home-school their children or send their children to private schools will lose their exemptions even though they are not burdening the public school system.

Phone Tax. Representative Brad Dee (R-Ogden) is proposing to increase the amount of the cell and land line phone tax by $8 million in two ways. Local governments would be allowed to impose an increase from the current maximum of 53-cents to 65-cents per month. This bill would also create a new 16-cent per month state-wide tax. Revenues from the Dee Tax would be earmarked for enhanced 911 operations. Your Taxpayers Association opposes this bill primarily because the Dee Tax earmarks revenues for a specific purpose even though the tax is not tied to usage. This tax is based on a “shoot the messenger” philosophy where the tool used to report emergencies is penalized.

Property Tax Hike. The spending lobby will be promoting legislation to permanently exempt from Truth-in-Taxation the statewide basic levy for education. Supporters of this legislation argue that the basic levy does not keep up with inflation. However, if the basic levy is exempted from Truth-in-Taxation, then cities and counties will lobby to have their levies exempted also. This would completely undermine the whole purpose of Truth-in-Taxation which is to prevent automatic revenue windfalls to government simply because property values have increased. If the legislature wants to increase the basic levy, then they should follow existing law and have a Truth-in-Taxation hearing.

Local governments have been misinforming legislators about the impact of Truth-in-Taxation on property tax revenues, claiming that property tax revenues have not kept up with inflation. However the truth is that since 1985, statewide property tax revenues have increased 156% while population growth and inflation combined were just ;146% during the same time period.

During the 1990s, the legislature significantly reduced the statewide basic levy, and this reduction was unrelated to Truth-in-Taxation. The legislature also allowed counties to impose a county option sales tax which could only be imposed by a dollar-for-dollar reduction in property taxes. When property tax collections are adjusted for these two factors, total revenues since 1985 have increased 225% compared to combined population growth and inflation of 146%.