After getting the green light from the task force that shaped a proposed overhaul of Utah’s tax system, the lawmaker who helped lead the group expects quick approval when legislators meet to consider it.
That will likely come Thursday, the date of a special session, announced by Gov. Gary Herbert Tuesday evening. If the plan is approved, and Hillyard thinks prospects are favorable, Utahns could see the impacts next month — more take-home pay in their paychecks starting in January thanks to the income tax rate cut contained in the proposal.
“The decisions we make today will impact our children, grandchildren, and even great-grandchildren,” a statement from Herbert reads. “I have weighed the policy implications of the current tax bill with great care, and I have concluded that it does take meaningful steps toward stabilizing our tax structure and bringing more equity and fairness to the system. I have also carefully weighed the issue of timing, and whether or not this ought to be accomplished in a special session.
“After much consideration, I have concluded that this bill should be addressed in a special session, so that legislators can carry out their duty of setting base budgets available for allocation during the upcoming general legislative session.”
The hike in the gas tax outlined in the plan would be around 9 cents a gallon, he thinks, but when that would take effect hasn’t been pinpointed. Similarly, Hillyard isn’t sure when the increase in the sales tax on groceries, from the reduced rate of 1.75% to the full state sales tax rate of 4.85%, would go into effect.
The Utah Tax Restructuring and Equalization Task Force, co-chaired by Hillyard, a Republican from Logan, voted 6-3 Monday night to give the tax overhaul plan a favorable recommendation. Now the Utah House and Utah Senate must consider it during the special session Thursday, according to Hillyard.
The proposal outlines dramatic change in Utah’s tax structure, aiming, in part, to keep pace with the evolving source of tax revenue in the state. Notably, revenue from sales taxes on goods has waned as untaxed services account for more and more spending.
The income tax rate would go from 4.95% to 4.66%, per the plan, one of the key changes. For a family of four, that would result in an estimated tax savings of $300 if annual household income were $25,000, $525 if income were $60,000 and $120 if income were $85,000, according to plan estimates.
Apart from the tax on gasoline and the increase in the grocery sales tax, the plan calls for repeal of several sales tax exemptions and new sales taxes on certain services. All told, it would cut income taxes by $635.5 million and generate $475.5 million in other new taxes for a net reduction in tax collections statewide of $160 million.
In predicting relatively quick approval of the plan, Hillyard noted the time the task force has spent on the plan, some 60 hours at 15 or 16 meetings, including eight town hall meetings around the state during the summer. “It’s something we’ve been talking about for seven months,” he said.
Though not certain when the new gas tax and sales tax hike on food would take place, he said such change is typically implemented at the start of a quarter. Timing details, he thinks, would be sorted out during the anticipated special session.
Given increases in income tax revenue and relatively low funding expectations for the state’s general fund, Hillyard warned of dire circumstances if the overhaul isn’t approved. Income tax revenue in the state is earmarked for education, per the Utah Constitution, hampering efforts to fund other elements of the state budget. The income tax cut and other tax increases aim to balance the funding streams going to the varied pillars of government, giving lawmakers more leeway in distributing funds.
“If we don’t do it, it’ll be a pretty bleak Christmas,” he said. Lawmakers, he continued, would likely have to look more closely at extending taxes on a wider array of services.
Some advocates for the poor have decried the proposed increase in the sales tax on groceries as regressive, hitting low-income families hard. Other provisions of the plan, including tax credits geared to the low- and moderate-income Utahns, aim to counter the hit.
Some education advocates have worried about talk of removing the constitutional provision earmarking income tax revenue for schools. That change isn’t contemplated in the current plan but would likely be a focus of discussion in the coming legislative session starting next January. Lawmakers would have to approve putting a ballot question to voters on the issue and, if they do so, it would likely be on the ballot next November.
As for the net overall reduction in tax revenue outlined in the plan, $160 million in fiscal year 2021, Hillyard said the state can absorb such a cut. Lawmakers, he said, are always tweaking spending, finding places to save.
“That’s a constant thing we do at the Legislature,” he said. “That’s just a natural part of government.”