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‘Don’t Tax Me; Don’t Tax Thee; Tax the Fellow Behind the Tree’

The quote in the title comes from legendary U.S. Senator Russell Long (D-LA), who served for 15 years as chairman of the Senate Finance Committee and had first-hand experience what members of Utah’s Tax Restructuring and Equalization Task Force are going through. Last week they concluded their town hall meeting tour of the state.  Your Taxpayers Association staff attended all but one of the nine meetings and spoke at two of them.

Tax Reform Listening Tour Concludes

The most common theme expressed during the one hour of public comment at each three-hour town meeting was reflected in the statement in the title. Although the committee tried to communicate that the disastrous HB 441 of the 2019 General Session was not the starting point of the task force’s work, a majority of public comment was focused on the hundreds of millions of dollars in tax hikes proposed in HB 441. What else could they do? The Task Force didn’t have a proposal for the public to react to, so comments were naturally focused on the only proposal they knew.

Lawyers, accountants, realtors, engineers and others gave reasons why new sales taxes should not be placed on their services. Business owners made arguments that taxes on business services should not be imposed and that current pyramiding should be eliminated.  Educators gave reasons why the earmarking of income taxes for education should be protected.

Multi-level marketing representatives raised many concerns about how a tax on their services could possibly be administered.  No answers were provided.

Several persons noted that the state does not have a revenue problem, it has a spending problem.  Others said it is a silo problem which ties the hands of policymakers in allocating revenues to fund needs where they exist. They called on the legislature to remove earmarks such as the income tax for education which would require a constitutional amendment and the earmark of sales taxes for highways.

Local government officials expressed concerns about potential revenue losses or shifts if current sales tax sources are altered and rates are correspondingly reduced.

Local Highway Funding Must Be Part of Tax Reform

The sentiments of many city and county officials were summarized by Beaver County Commissioner Mark Whitney who expressed concerns about rural counties not having the capacity to fund maintenance of hundreds of miles of roads on a diminishing revenue stream through the B&C road fund which is intended to fund city and county roads. He noted that with the state relying more on general fund sales taxes than motor fuel taxes and registration fees, the B&C revenues are not keeping up with needs. As a result, counties are either cannibalizing from property or sales taxes needed for general fund purposes or road maintenance is delayed and road quality is permanently compromised.

Commissioner Whitney is correct.  For years, the legislature’s general unwillingness to make highway users pay their way has resulted in general fund sales taxes paying more than $600 million annually for state highways while the usual sources of highway funding – fuel taxes and vehicle registration fees – produce only $550 million.

The B&C road fund has been receiving 25% of the state highway user funds for decades and recently was increased to 30% but it is on a base that is less than half of what the state is spending on transportation.

It’s true that the legislature recently indexed the gas tax for inflation, increasing the per gallon tax to 30 cents for 2019 and 31.1 cents 2020. However, the B&C share of this is just $5.3 per penny which doesn’t begin to match what the B&C share would be if the 30% were applied to the state general fund subsidy of $600 million for highways.  This would produce approximately $180 million, nearly double the $186 million currently in the B&C fund.

Recently the legislature gave counties the ability to seek voter approval of their own sales tax for local roads.  Initially Weber and Davis County voters approved the tax while Salt Lake and Utah county voters rejected it.  So the legislature changed the law to let the county governing bodies in Salt Lake and Utah counties to do what the voters rejected, which they now have done.

Your Taxpayers Association believes highway users should be required to shoulder more of the burden of the roads they use. Utah is the only state that uses general fund revenues to pay for transportation improvement.  While we appreciate the foresight shown by the legislature in keeping ahead of growth better than any other state, we also believe highway users should pay more of the cost, leaving current general fund subsidies to be used for tax cuts to offset increased highway user fee increases.  At the same time, we recognize the unreasonable reality that the gas tax equivalent to replace the $600 million general fund subsidy would be 34 cents per gallon on top of the existing 30 cents per gallon.

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