After pushing hard for the most significant reform to Utah taxes since the Great Depression, and being confident of passage, Gov. Gary Herbert and lawmakers scuttled the bill, opting for further study and a possible spring or summer special session. We explore some of the questions.
Why did the Legislature undertake, and then abruptly scuttle, this massive effort to expand the sales tax to a wide variety of services? Was the opposition that deep?
Pignanelli: "The avoidance of taxes is the only intellectual pursuit that still carries any reward." — John Maynard Keynes
The Utah culture is well-known for passive-aggressive behavior. But aversion to confrontation disappears when dire challenges to our society and government appear (A proud pioneer legacy). Unlike federal officials whose shoes are scuffed from kicking cans down the road, Utah leaders are fearless. Modern history examples include building pumps to divert an expanding Great Salt Lake, preempting pension catastrophe, diversifying the economy to minimize recessions, etc.
Experts disagree as to timing, but all officials and economic observers concur the General Fund is facing a future disaster. The proposal expanding sales tax to professional services — while reducing the overall rate and income tax — generated tremendous controversy and emotional opposition. Hundreds of businesses (including my clients) conveyed to lawmakers their legitimate concerns with the content and process of the legislation. More importantly, legislators listened to the anxieties of thousands of Utahns (engineers, hairstylists, financial planners, caterers, lawyers, accountants, etc.).
Despite the turmoil, the political courage and vision of state leaders must be respected, especially “The Mighty Quinn” (House sponsor Rep. Tim Quinn) who genially fielded questions from many Utahns across the economic spectrum. In my first session as a rookie lawmaker, legislators raised the sales and income taxes to prevent a collapse of state government. This fostered protest rallies and extreme reactions. So, I feel the pain lawmakers experienced.
I will accept any wager state leaders find a solution in the near future. My bet on Washington, D.C. is much different.
Webb: I’m disappointed the job didn’t get done. Remember, this was a tax cut. And it was structured to be phased in so changes could be made. It would have worked just fine. In dealing with tough, complex public policy issues, it’s often better to just rip the Band-Aid off, and get the pain over with, rather than dribble out the discomfort over weeks and months.
I’m also disappointed in various industries and lobbyists that aired inaccurate, confusing and unfair information about the legislation, creating a big enough uproar that lawmakers backed off.
Yes, the legislation was complicated. But broadening the tax base, while lowering the rates, is absolutely the right thing to do. And it was a tax cut. And service providers have no right to think they should be excluded from the tax system. Why should we tax some services, but not others? Why tax food (albeit at a low rate), but not Uber rides? Why should we tax the purchase of an electric drill a carpenter needs to make a living, but not a haircut?
The “sky is falling — we’ll all go out of business” whining we heard from a lot of businesses and industries was just silly. Thousands of businesses charge sales tax. All of them pass it on to consumers. Consumers still purchase their goods and services. Compliance is not that difficult. Everyone seems to want tax reform. But they don’t want it to apply to them.
And did I mention that this was a tax cut?
The governor and the Legislature promised further study and a special session to enact tax reform. Can they deliver on this?
Pignanelli: Pushing the issue out for another six months extends pain for decision-makers. But the advantage is the opportunity to educate and recruit supporters for a resolution.
Webb: Here’s what’s worse than the pain of fair and proper tax reform: Lacking enough tax revenue in the near future to pay for the basic services of state government like education, prisons, Medicaid and law enforcement. They’d better deliver.
Will sales tax expansion be an issue in the 2020 elections?
Pignanelli: Any meritorious tax reform has consequences of implementation. Therefore, the political ramifications are directly correlated with perception and messaging.
Candidates for governor and other state offices may view this controversy as an opportunity and become voices of opposition. Gov. Norman Bangerter only survived re-election in 1988 by strong messaging explaining his tax increases. But in 1968 there was a major shift in the Legislature because such communications were absent. The delay allows current officials valuable time to strategize.
Webb: If done right and communicated effectively, reforming and cutting taxes can be a net positive for lawmakers facing re-election. Certainly, the whiners will whine. But, did I mention this is going to be a tax cut — not a tax increase? The tax burden might be distributed differently, but it will be reduced. A nice tax cut — and modernizing Utah’s tax system to make it fairer and to protect education and essential state services for the long term — isn’t a bad re-election platform.