GOP legislative leaders still working on tax reform plan

GOP legislative leaders still working on tax reform plan

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SALT LAKE CITY — GOP legislative leaders are taking another look at the income tax piece of their tax reform package but are still working to put together a plan before the session ends March 9.

That plan will still include reductions to both the income and sales tax rates, and restore the full state sales tax, 4.7 percent, on food purchases, said Senate President Wayne Niederhauser, R-Sandy.

The changes are intended to be revenue neutral for the first year because the rates will be lowered, possibly by around one-half of a percent each, but then bring in more tax dollars as the base is broadened.

However, Niederhauser said there's an issue on the income tax piece with the impact of adjusting how much money Utahns can earn before they are no longer allowed to take a credit for exemptions on their state income tax returns.

Currently that amount is around $175,000, but he said there had been talk of dropping it to $100,000 or even to as low as $75,000.

The trouble is, because the credit is actually phased out gradually for all taxpayers, that much of a drop meant a bigger tax bill for more Utahns, something Niederhauser said is too difficult politically to impose.

So he said legislative leaders are now considering making the cutoff for the tax credit around $125,000, and accelerating the phase out at the higher end of the income scale so fewer taxpayers are hit by the change.

"Those are the things we're going to have to look at to get support," the Senate president said. "If we're taking a certain segment of the middle class and they're bearing the burden of this tax reform, that politically isn't going to happen."

Especially since the initial proposal could have affected "60-70 percent of the voters, and we're very, obviously being a political body, very sensitive to that," Niederhauser said.

House Speaker Greg Hughes, R-Draper, said lawmakers are taking more time to evaluate the impact of changes to income taxes, hoping to avoid any long-term unintended consequences.

"We've got to be very concerned with who the winners and losers are," Hughes said. "We want to be very careful not to hurt the middle class. That's the data we're trying to wrap our heads around and get right."

The speaker acknowledged the end of the legislative session is nearing, but he said lawmakers shouldn't rush an issue as significant as tax reform.

"I'm not guaranteeing an outcome here," Hughes said. "We are giving it our full attention, and we're working very hard. But to get it right, you don't want to be too hasty."

Both House and Senate Republicans, who hold supermajorities in both houses, have discussed the proposed package behind closed doors and agreed it should move forward this session.

A ballot initiative to raise taxes that's being put together by a group of community and business leaders has been credited for the intense interest in tax reform among lawmakers.

The Our Schools Now initiative, which could go before voters in 2018, would raise the state's 5 percent income tax rate by seven-eighths of a percent, an increase of more than 17 percent, to bring in $750 million for schools.

Backers of the initiative have not said whether the GOP tax plan will be enough to stop them from starting to gather voter signatures later this year. Just how much the new tax plan is expected to eventually add to state coffers remains to be seen.

A single bill with both the income and sales tax components has yet to be drafted.

Niederhauser said the effect of increasing the sales tax on food while lowering the sales tax rate is "very proportionate" and is "very close to not affecting one income class more than another."

Other tax changes may also get through this session, he said, including an adjustment to the formula used to calculate the gas tax to ensure it will go up even as prices go down.

Hughes said lawmakers agree structural changes must happen to get ahead of some "scary trajectories" regarding the state's growth and revenue needed to keep up with expenses.

"We see the trouble happening," the speaker said. "If we kick the can down the road and we don't do anything, some of these challenges we see coming in terms of the demand of the state, the maintenance of what it costs to run a state growing as fast as ours with the revenue not as stable, the longer you wait the harder those decisions come to the legislative body."

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UtahPolitics
Lisa Riley Roche

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