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SALT LAKE CITY — A deal that included restoring the full sales tax on all food purchases and giving low-income Utahns income tax credits collapsed Monday after House leaders decided it was "better to tap the brakes."
House Republican leaders said they need more time to consider the plan pushed by the Senate GOP that would have also reduced the overall sales tax from 4.7 percent to around 4.4 percent.
"There's always next year," said House Majority Leader Brad Wilson, R-Kaysville.
"We like to tackle hard things, but if we don't feel like we've got adequate time for information, we're not going to jump into something," he said. "We thought it would be better to tap the brakes and keep working on it."
Senate President Wayne Niederhauser, R-Sandy, said tax reform will continue to be studied during the interim between this session and the 2018 Legislature, focused on exemptions, credits and the sales tax earmark for transportation.
For now, that means leaving the 1.75 percent state sales tax on food alone, Niederhauser said, adding he "can't close the door on sales tax on food until we’ve looked at all of those issues."
Legislative leaders put a halt to the deal reached Friday between House and Senate Republicans after reviewing new data showing restoring the sales tax on food had less of an impact on stabilizing the shrinking tax base than expected.
"We discovered restoring the sales tax back on food, while it does lessen the volatility, it doesn't signficantly lower the volatility," Niederhauser said, because only 11 percent of sales taxes come from food purchases.
"That was the thing that was revealed today, and thankfully we found that out today before we jumped off that cliff and did that," the Senate president said, even though it is "good tax policy."
House Speaker Greg Hughes, R-Draper, said he was "incredibly disappointed because this is something that I know on a policy level we have the political will to do, to commit to the heavy lifts and makes those changes."
Hughes said lawmakers didn't "stumble across" the information about the lessened impact but instead ran model after model to measure the impact of the change combined with proposals intended to mitigate the effect on the poor.
At least one of those proposals, a refundable grocery tax credit similar to one offered in Idaho intended to help lower-income residents offset the additional food tax, is off the table, Niederhauser said.
The demise of the deal came just hours after Senate leaders said the public would have its first opportunity Tuesday night — two days before the 2017 Legislature ends — to weigh in on the tax reform plan in a rare joint House and Senate hearing.
The tax reform bill's sponsor, Rep. Steve Eliason, R-Sandy, had already given up on an effort to leave the sales tax on food on "basic necessities," saying that had "proved too difficult logistically."
He said dropping the state's 4.7 percent sales tax rate would have saved Utahns money on all other purchases, including prepared food "and lots of other necessities like diapers, school supplies, over-the-counter medications."
The bill was intended to be revenue neutral, lowering the sales tax rate enough to compensate for the additional money coming in from food purchases and the tax credit. The broader tax base was expected to eventually bring in more revenue.
Senate Republicans had pressed throughout the session for a tax reform package that also included lowering the amount of money earned before losing income tax exemptions and a drop in the 5 percent income tax rate.
But the House GOP agreed Friday only to restoring the full sales tax on food while dropping the rate and giving low-income residents the refundable grocery tax credit, along with an earned income tax credit already in another bill.
Niederhauser said earlier Monday that lawmakers should have never reduced the sales tax on food a decade ago. The food tax was lowered as part of a tax-cut package that also set a single, 5 percent income tax rate.
"This is where I think we should have gone in 2007 instead of giving everybody that and lowering the base. Not everyone is challenged in paying their food tax. It’s the lowest in income," the Senate president said.
Later, that decision was described by Hughes as "more of a political consideration." Niederhauser said income tax was "where the reform was and in order to address the middle, the low income, we brought in the sales tax off food."
Democrats had been briefed about the proposal but were not part of the discussions.
Senate Minority Leader Gene Davis, D-Salt Lake City, said Democrats were "quite encouraged the sales tax on food did not go through." He said he was looking forward to a "good discussion" on tax exemptions and other issues.
Lawmakers were prodded to look at taxes this session because of 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 raise $750 million for schools.
Backers of the initiative, which include Utah Jazz owner Gail Miller and other prominent business and community leaders, had already said they plan to begin gathering voter signatures later this year.
