by Howard Stephenson
Governor Walker’s 16 point tax reform plan was described in this column last week as containing several changes which the Utah business community has been seeking for many years. The most positive parts of the prosal include: 1) lowering our current 7% nominal rate for Utah income taxes a 5% tax on federal taxable income or a 4% rate on federal adjusted gross income, 2) eliminating the corporate income tax, 3) eliminating sales taxes on business inputs 4) eliminate the crazy-quilt of sales tax rates through a single statewide sales tax rate, 5) reducing property tax subsidies for water users, and 6) curtailing the abuses of Redevelopment Agencies.
The Questionable
Although the proposal it revenue-neutral, it contains some items which are traditionally opposed by taxpayers.
1. Shift a portion of the current 24.5 cent per gallon motor fuel tax to a sales tax. This would allow gas tax revenues to grow somewhat as prices increase while still providing the stability of the per-gallon component.
2. Change the two-tiered oil & gas severance tax to one rate. While this may increase taxes slightly, oil & gas will also benefit from the elimination of sales taxes on their equipment and machinery and would also benefit from the elimination of the corporate income tax.
3. Retain the state inheritance tax if congress decides to hang on to it.
4. Allow an annual inflationary adjustment in the certified property tax rate under the Truth-in-Taxation law (TNT). While this would allow annual increases for inflation, it would eliminate the current justification of adjusting for inflation every five or six years. Currently when going through the TNT process local officials often reason for much higher increases since they have to go through the pain of exceeding the certified rate. Under this new system, taxpayers would be justified in opposing nearly all tax hikes because annual inflation is already built in.
5. Require a summit between centrally assessed taxpayers and the counties who believe centrally assessed taxpayers don’t pay their fair share of taxes . This may actually be a good thing because the facts are on the side of centrally assessed taxpayers, which show that if anything, centrally assessed taxpayers are over-assessed. If they actually get the county officials who have it in for centrally assessed taxpayers to actually face the facts, this issue may be put to bed once and for all.
Overall Assessment
I believe that on the whole, this plan is the best tax policy proposal to come along in the 27 years I’ve been at the Taxpayers Association. It has a few elements that taxpayers won’t like, but the fact that it accomplishes the economic development goals for which the business community has been working so hard makes the plan worth the legislature’s and Governor-elect Jon Huntsman’s serious consideration.
The plan has been touted as a remedy to the state’s tax volitility and eroding tax base. However, taxpayers should be most excited about the fact that the plan should restrict government growth. By eliminating the peaks and valleys in state and local revenue streams, there will be less tendency by budget makers to increase spending during boom years beyond sustainable levels. Other traditional problems of the boom-bust cycle should also be mitigated.
I am impressed by the work of the Governor’s committee and realize in hindisght that it was a good thing they created this proposal outside of the political process where it would have been dismantled as each piece was added. The proposal was developed over a period of more than one year by a team of distinguished tax experts including: Pam Hendrickson, Utah State Tax Commission Chair; Bruce Johnson, Utah State Tax Commission; Lynn Ward, Governor’s Deputy Chief of Staff; Gary Cornia, BYU professor and former State Tax Commissioner; Keith Prescott, CPA, tax practitioner; Val Oveson, Utah Chief Information Officer; Leo Memmott, Governor’s Deputy of Policy; Ray Nelson, BYU professor.
A few legislators are not taking the plan seriously because they were not included in the process. It would be a mistake for them to disregard it.
The business community will likely never have the opportunity to achieve so many of its goals in one legislative session.
Some may not like the plan because it is so comprehensive: it seeks to change so many things at once. However, it may be easier to swallow the whole elephant in one bite rather than piece-meal. If this plan is adopted in its entirety, Utah could have one of the most competitive tax climates in the nation, despite our extreme funding demands for education due to our high birth rate. Utah’s average annual wage is currently only 83% of the national figure. This proposal could stimulate economic activity to improve family incomes by encouraging higher paying jobs.
The text of the tax plan can be found at www.utah.gov/governor/newsrels/.