SALT LAKE CITY — Dozens of teachers in bright red T-shirts came to the Capitol Thursday for a meeting on a tax reform bill drafted for a possible special session of the Utah Legislature that calls for dropping the state income tax rate to 4.58% while raising sales taxes on food, gas and some services.
But the bill does not deal with what may be the most controversial piece of the plan being put together by GOP legislative leaders — amending the Utah Constitution to remove the earmark on income tax revenues for education while coming up with an alternative source of funding.
“From our expert vantage point, the tax bill language is not fair, is not just and is not good for kids,” Utah Education Association President Heidi Matthews told members of the Legislature’s Tax Restructuring and Equalization Task Force, citing “massive” cuts that would be made in income taxes without a new plan for paying for schools.
“How can we begin to make decisions about this proposal in the absence of a new funding plan for education? We are asked to trust and we ask you to give us something to trust,” she said, suggesting to cheers that lawmakers should do what would be expected of a math student, “to show your work.”
Discussions are underway between Republican lawmakers and education leaders about the issue, but it may have to wait until the 2020 Legislature begins meeting in late January if an agreement on public education funding can’t be reached soon.
Michael McDonough, a teacher at Woodstock Elementary School in Murray, compared cutting income taxes without resolving how that money would be made up to demolishing an old school that needs replacing “while the kids were still in it” instead of waiting for a new building to be completed.
Another teacher, Caren Burns, became emotional as she described the impact raising the sales tax on food and adding new taxes to services will have on the low-income students she sees at Beehive Elementary in Kearns. Burns said she has operated a food pantry out of a closet for them.
I am sitting in a sea of #redfored this evening at the Utah Tax Reform Hearing. I hope this task force sees us and hears us today as we attempt to defend and advocate for marginalized communities and kids in Utah. #utahtaxreform @my_uea @ut_teacherfellows @slco_democrats pic.twitter.com/oIEy6k3F92— Caren Burns (@carenjburns) November 8, 2019
Their families are already struggling, she said, unable to afford fixing their cars, repairing their homes and even burying their dead. “If you are going to increase taxes on food, take away education funding, and increase the taxes on these services, I guarantee it will hurt the families in Utah,” Burns said.
It wasn’t just educators who testified against the draft bill, which trimmed back the list of services that would be subject to sales taxes to now include landscaping and other maintenance and repair work, non-emergency veterinary care, tour buses, parking lots, tattoos, identity theft protection, ride-sharing and video streaming.
Dennis Lindsay, the accountant for Pond’s Plumbing and Heating in North Salt Lake, questioned how plumbers would know how much to collect in sales taxes on a job given that tax rates vary from city to city, and how the business would make sure the 10,000 invoices they process annually were correct.
Steve Garrett, a father of six from Herriman who said he was there to represent other hard-working husbands and fathers, complained about the $150 per-person grocery tax credit in the bill intended to offset the impact of raising the state sales tax on food, now 1.75%, to the full 4.85% state sales tax rate on Utahns earning less than $45,000.
“Seriously, you’re going to give my money to those who didn’t earn it? That’s not the Utah way,” he said.
The 182-page bill — put together by the task force co-chairmen Sen. Lyle Hillyard, R-Logan, and House Majority Leader Francis Gibson, R-Mapleton — was posted online about six hours before the task force meeting started at 4 p.m., along with a summary of the proposal.
Sen. Curt Bramble, R-Provo, expressed frustration that details of the bill draft were leaked earlier to the news media and said members of the task force should have had more time to review the proposal. A certified public accountant, he came up with issue after issue with the language of the draft.
That caused a testy exchange with Gibson, who said it would have been nice to have those suggestions earlier. “It would have been nice to have a bill,” Bramble said.
In the end, no changes were made to the bill Thursday, although both Gibson and Hillyard stressed it was still just a draft.
The task force is set to meet again on Nov. 21. Whether the bill will be dealt with in a special session of the Legislature remains to be seen, although legislative leaders have made it clear they would like to see what is expected to be an overall tax cut for the majority of Utahns in place by Jan. 1.
That would allow most Utahns to see an increase in their take-home pay once state tax tables are adjusted for the new, lower rate on the taxes that will be owed in April 2021 on next year’s earnings. Next year is also an election year for all state House members and half of the state senators.
According to the summary, sales tax revenues would increase by approximately $570 million, while income taxes would be cut by $650 million, an overall net tax reduction of about $80 million that would give a family of four earning $60,000 annually an estimated tax reduction of more than $320.
Hillyard told KSL that the bill is a “synopsis” of a proposal released last month, with some modifications based on discussions with “various industry leaders,” including companies that use large amounts of diesel fuel.
There are also new specifics in the bill, including reducing the current 4.95% state income tax rate to 4.58%, as well as a new state earned-income credit tied to a state intergenerational poverty program to help offset the impact of the sales tax increases on low-income Utahns.
The sales tax exemption for gas distributors would be lifted, meaning when gas is priced at $2.50 a gallon, the price at the pump would likely go up about 12 cents a gallon on top of the 31 cents a gallon already being paid in gas taxes.
Diesel fuel, however, would be treated differently, Hillyard said. Instead of adding sales taxes, the gas tax on diesel fuel would rise 10 cents a gallon, he said, in response to concerns raised by companies that buy large amounts of diesel fuel and want consistent pricing.
Hillyard said the additional fuel taxes should be seen as short term, although there is no end date specified in the bill. He said language is included spelling out that the Utah Department of Transportation must find an alternative to gas taxes, which now pay for only about one-third of road costs.
The task force was created by lawmakers during the 2019 session, after legislative leaders scrapped a proposal that would have added sales taxes to a wide range of services, including hair cuts, travel bookings, legal advice and lawn care.
Lawmakers are trying to resolve what is seen as a structural imbalance in the state budget caused by lagging growth in sales tax revenues as consumer spending shifts from goods to services. While income taxes now go to education, sales taxes make up the bulk of the general fund that pays for much of the rest of the budget.