Fair Tax Policy
Utah's Legislature enters the session flush with cash, but with economic storm clouds on the horizon. Lawmakers expect to have more than $1 billion in surplus to juggle, and Utahns, by a large margin, support investing that money in schools.
Forty-nine percent say school spending is the highest priority; 26 percent say a tax cut tops the list. [...]
Lawmakers in the past two sessions have taken bites out of the sales tax on food. Now, the poll shows, Utahns want another helping.
Forty-four percent of residents said that, if there is a tax cut, it should be on food. Three in 10 wanted to see property tax relief and 19 percent want an income tax cut.
"I really would like to see the tax taken off food," said Lin Jatubczak, a 72-year-old retiree from St. George. "I think that would benefit a lot of people who really need help."
This post is intended to be a first in a series of posts that deal with the economic viability of Reaganomics and it’s 21st century variant, Bushonomics. This first essay will talk a little about definitions and touch on the history behind these economic policies as they’ve been proposed and passed into law.
In 1981, Ronald Reagan assumed the presidency and proposed a dramatic shift in the role and size of the federal government. Assuming the presidency during a time of double digit inflation and interest rates, there were also deep-seeded economic rumblings that were occurring in major industries in the United States such as steel, automobiles, and other heavy industries that were capital intensive and burdened with large numbers of relatively well paid working class jobs.
Utah's flat-rate income tax is dead — even before it actually took effect.
Instead, Gov. Jon Huntsman Jr. and GOP legislative leaders said Thursday that Utah should move to a single-rate personal income tax system of 5 percent that is "credit-based, not deduction-based." [...]
While Huntsman's latest income tax plan has only one, single-digit rate, House Republicans aren't calling it a flat-tax system.
"There really is not a whole lot of difference" in the final tax impacts between the current multi-deduction, multi-tax bracket system and a new 5 percent system, said [House Speaker Greg] Curtis.
The largest changes are the lower tax rate — which Huntsman wants for economic development — and replacing a deduction-based system, in which income is lowered through deductions before a tax rate is applied, with a credit-based system, where the tax rate is applied to an Adjusted Gross Income (AGI) and then tax credits are subtracted from the tax bill.
The Utah Legislature session begins next week. There is an even bigger record surplus this year than last year. However, prudence calls to mind the Biblical story of seven fat years, followed by seven lean years. Budget surpluses can be used to restore balance to the state budget and repair damage done in the lean years. The large surplus also creates a climate in which tax reform can occur. Keep a close eye on those boring committees dealing with Revenue and Taxation, folks!
Sen. Ed Mayne, D-West Valley City, amended the bill to build in future inflation protection, then chided his colleagues for failing to pass true tax reform.
"Come on folks, the public understands this isn't tax reform," Mayne said, hinting it is more about a pre-election tax cut. Half the Senate seats and all House seats are up in the Nov. 7 balloting.
Even Sen. Lyle Hillyard, R-Logan, said the constituents he's talked to say they'd rather give their tax cut to public and higher education. Hillyard said at a recent national conference of legislators no one argued that a lower income tax rate results in any kind of economic development — rather, a smart work force is what business leaders want.
Counties will be able to put a sales tax increase on November ballots for transportation improvements as the result of action by the Legislature at Tuesday's special session. [...]
The counties would decide which projects the money would fund, with 25 percent of the money raised going toward corridor preservation in larger counties. The remainder of those funds could be used for transit and roads.
On the Utah Legislature website (le.utah.gov), scroll down to the audio and video links under "What's Happening Today."
Op-ed by junior high teacher Jennifer Allen in the Deseret News:
While I think the "trickle down" theory, in which tax cuts will encourage business growth and therefore generate new taxes, is fine in theory, it has not worked out in practice. While the past two years have been banner years for Utah's economy, the huge tax growth in the state has not translated into better funding for education. [...]
If the state is so flush with cash, then how is it that schools have received none of this windfall? In the past 10 years, the state of Utah has gone from spending the fifth most per capita on public education to 26th in the nation.
Allen raises some good points. If a booming economy is supposed to generate more funds for education, why hasn't our already-booming state economy generated more funds for education?
Utah ended its fiscal year June 30 with a $215 million surplus beyond appropriations in the Uniform School Fund, which comes from income tax. Huntsman argues that the state can afford to increase spending for education and cut taxes because of its current robust economy and, more important, because lower taxes will entice more companies to locate here and that will eventually boost revenues even more.
That's taking a big risk. With Utah's current standing at rock bottom in the nation in per-pupil spending, an expected influx of 150,000 new students in the coming decade, a looming teacher shortage due to low salaries and a growing number of low-income, minority families whose children need extra help, can we really afford such a gamble?
House Minority Leader Ralph Becker, D-Salt Lake, acknowledged that many Democratic lawmakers would support the dual-tax plan because it at least includes expanded brackets and inflation adjustment.
Rep. Pat Jones said Democrats have been pushing for rebracketing and indexing for several years. But Rep. Roz McGee, who served on the Tax Reform Task Force last summer, said the opportunity for meaningful change is being squandered.
Nearly all Democrats will support the sales tax for transportation measure because mass transit is a crucial need, Becker said.
While acknowledging that the fate of a proposed income-tax cut does not hinge on their support, legislative Democrats are confident they can still play a significant role in next week's special session.
That could prove particularly true on a still-developing funding plan for transportation, which the Democrats generally support because it will expand public transportation options such as light and commuter rail along the Wasatch Front. With Republicans not as united on one particular plan, House Minority Leader Ralph Becker, D-Salt Lake, said that Democrats may be able to exercise some influence that they lack on the tax cut.
Huntsman told the Deseret Morning News Tuesday that he is confident there will be enough votes during a Sept. 19 special session to pass that legislation as well as to give authority for voters to raise sales taxes by one-quarter cent for road, mass transit and airport projects.
Both Republican and Democratic leaders in the Utah House agree that both items will pass next week. In the Senate, the GOP majority has endorsed the income tax changes but is still being sold on the transportation proposal. [...]
House Minority Leader Ralph Becker, D-Salt Lake, said Democrats will call a press conference today to detail their likes and dislikes. "Some Democrats will vote for the tax reform — mainly because indexing the tax for inflation is a big help," he said.
Note to Rep. Becker: Please stop using the Republicans' language.
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