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SALT LAKE CITY — A deal reached Friday by House and Senate Republicans would restore the full sales tax on some food, reduce the 4.7 percent rate and provide some income tax credits for the poor.
Legislative leaders said a bill is being drafted over the weekend and what will likely be a joint House and Senate committee hearing will be held as soon as possible. The 45-day session ends at midnight Thursday.
The deal comes after two days of closed-door caucuses on the issue by House Republicans, including a late-night meeting Thursday to discuss a tax reform package from the Senate GOP that also included income tax changes.
Senate Republicans had backed both restoring the state sales tax on food and reducing the amount of money that can be earned before losing income tax exemptions, while cutting both the 4.7 percent sales and 5 percent income tax rates.
But GOP members of the House had little interest in dealing with the income tax this session, even after a proposal surfaced to leave the rate intact for the wealthy while giving tax cuts to low- and middle-income Utahns.
Instead, the House pushed for both a state earned income tax credit as well as another credit for low-income Utahns to take on their state income tax returns to offset the sales tax paid on groceries.
The tax reform package is intended to be revenue neutral initially.
House Speaker Greg Hughes, R-Draper, said the tax reform package needs to be looked at "in a more broader context so no one thinks that the lower-income (population) is being disproportionately hit."
Citing the Legislature's efforts on homelessness and other issues, Hughes said, "there’s a lot that’s going on here, and we don’t want anything to be too myopic on just the reform on lowering the tax rate and broadening that base."
Senate President Wayne Niederhauser, R-Sandy, said his caucus supports the concept endorsed by the House, but there are still many details to be finalized. That includes what the new sales tax rate would be and what food would be fully taxed.
"We want to see at least some effort toward stabilizing the bases," Niederhauser said. "Let’s deal with the exception rather than create a volatile revenue stream for a small amount of the population," he said of the sales tax on food.
As for income tax, the Senate president said that proved too difficult to tackle this session.
"It’s tough to make any changes there," Niederhauser said.
When the top income tax rate was lowered from 7 percent a decade ago — the same time the sales taxe was lowered on food — some Utahns ended up paying more taxes because of changes to the exemptions allowed, he said.
But Niederhauser said he plans to keep trying.
"We're not going to sweep anything off the table at this point," he said, citing concerns about the need for more money for schools.
The tax talk began in response to a proposed 2018 ballot initiative, Our Schools Now, that would raise the income tax rate by seven-eighths of a percent — a 17.5 percent increase — to bring in $750 million for schools.
House Republicans are focused on blunting the impact of tax reform on the neediest Utahns, Hughes said.
The refundable grocery credit will likely be patterned after Idaho state tax policy that averages about $100 per person. Some Idaho households also claim credits for dependents, according to the Idaho State Tax Commission website.
The state-level earned income tax credit would also assist the working poor.
HB294, which was approved earlier in the legislative session by the House and passed out of a Senate committee Friday, is focused on working people who are experiencing intergenerational poverty.
The federal government extends such a credit, which reduces the earners' tax burden. Some people also receive refunds.
The credit would cost the state $4.8 million, but income tax spent on credits would be restored with a transfer from the state’s general fund so education would be held harmless, according to the bill. Income tax is earmarked for education in Utah.
Hughes stressed that the bill that would restore the full sales tax on some food while lowering the overall sales tax rate would be a wash for the state budget. The size of the tax cut is expected to be based on how much more money is coming in.
"Government doesn’t expect to collect an extra dime from this plan. There are no additional dollars being raised in this process," the speaker said.
However, Niederhauser has said broadening the sales tax base to include the full rate on most food purchases will eventually boost state revenues. Growth in sales tax collections have slowed in recent years.
Democrats have been briefed about the tax proposals but have not participated in the discussions.
"To do major tax reform in the last days of the session gives me concern," said Rep. Patrice Arent, D-Millcreek. "I am also concerned that because the bill has not been finalized, no one from the public has been able to review the legislation, nor have I had a chance to read it."
Arent said major changes in tax policy "require careful analysis and review. This might be a good proposal. I just don't know."
