Speakers at Tax Conference Call for Changes in Tax Policy, Education, Spending Caps
Those who attended the 28^th annual Utah Taxes Now Conference in May heard Governor Jon M. Huntsman, Jr. advocate a broader, flatter state income to make Utah more competitive for higher paying jobs, Senate President John Valentine call for an end to tiered taxes on businesses – for example, ending sales taxes on business inputs; and House Speaker Greg Curtis explain that the Governor’s flatter income tax could be achieved through a bifurcated rate which would leave exemptions and deductions in place for those benefit from them while allowing an option for a rate less than 5% applied to a truly flat tax based on federal adjusted gross income.
Education Reform
Participating in a panel on education reform, Rep. Stuart Adams said that of the 100 largest school districts in the nation, Utah has four.
Of the four, Davis District’s graduation rate of 89% is #1 in the nation, Jordan was number 5 at 82%, Alpine number 8 at 81% and Granite was 12^th at 78%. Adams said that despite our low spending per student, this shows Utah does a good job with its education money. He said vouchers are a good idea because they actually provide more money per student for students in district schools. He explained that a fraction of the current amount spent per student would be given to parents who choose to take their children to private schools. This would leave the remaining amount we had been spending on that student to spend on those students who remain.
Rep. Sheryl Allen (R-Davis County) questioned how much Utahns value education when – as Utah Foundation recently reveled – our tax effort for public education as a percent of personal income has been dropping.
She said in 1992 Utah’s tax effort for public education as a percent of personal income was 122% of the national average. By 2004 that figure had dropped to 98% (See next month’s newsletter for a Taxpayers Association rebuttal to the Utah Foundation report). Allen said Utah is facing a teacher shortage and we must do more to attract teachers to the profession and keep the good ones. She pointed out that half of our new teachers are from out of state.
Education reform is made possible by those who love public education but feel we can do better, not by those detractors in the wings, said Rep.
Stephen Urquhart. “In the wings we see, first, groups who want to undercut public education. You know them by their harsh rhetoric, and they immediately marginalize themselves. There’s another group in the wings – which includes the union – who oppose any and all efforts to improve education. They are opposed to focusing on the core curriculum, opposed to education accountability, opposed to measures dealing with \collective bargaining, opposed to alternative licensing, opposed to improved composition of the State School Board, opposed to getting rid of bad teachers, opposed to private vouchers for remediation, and opposed to merit pay,” Urquhart said. He said both of these groups marginalize themselves and, consequently, are ineffective in affecting public policy.
Urquhart said Utah can and should accommodate the one or two percent of parents whose children are not being well-served by the public school system, by allowing them to take a portion of the money we are now spending on each student and taking their child to a school of the parents’ choosing.
Tax Reform
If revenues continue to grow at present rates, Utah could implement the full flat tax proposal next year, in spite of the newer, higher fiscal note on the measure which led the Governor to not put it on the call for special session.
Rep. John Dougall said Utah is talking about income tax reform because there is so much competition among the states for reducing marginal income tax rates and consequently Utah must respond to be competitive for location of high paying jobs. He discussed recent and current efforts to reduce rates in several states around the nation. He noted that Utah’s neighbors are much more competitive than Utah when it comes to income taxes. “Wyoming and Nevada have no income taxes. Colorado has a 4.63% flat tax, Arizona’s top rate is 5.04% while New Mexico is currently debating a proposal to drop their rate to 4.9%,” he explained.
Rep. Dougall said that by expanding the base and lowering the rate Utah can avoid the boom-bust cycle which has been so problematic for state budgeters. The change will mitigate the peaks and valleys in the revenue cycle, he said.
Utah hasn’t considered serious tax reform for over 40 years, according to Neil Ashdown, chief of staff to Governor Jon M. Huntsman, Jr.. He said the governor is in favor of a flatter, simpler tax to make Utah more competitive as a state and to provide a stable funding source for education going forward. “Utah is not ahead of the curve on income tax reform. Across the nation states are lowering their income tax rates. In
1985 the average rates was a little over 7% and Utah was in the middle of the pack at 7.7%. In a twenty year time period has dropped to 5.3% or a 25% drop. Today Utah’s 7% top rate is over 30% higher than the national average. If we dropped to a flat tax rate of 5% we would be fourteenth lowest,” Ashdown explained.
Ashdown noted that Utah is unique in earmarking 100% of income taxes for education. He said that with more kids coming into the system, we can either raise tax rates or grow the economy. He said Governor Huntsman is committed to grow the economy by making Utah more attractive through lower rates and through such programs as USTAR which will bring high paying research and technology jobs to Utah.
Tax & Spending Limits
“What are we buying with our large surpluses?” was the question posed by Rep. Greg Hughes at the conference. “We’re certainly not buying the goodwill of those we represent because the ‘needs’ are even greater than we can possibly fund. If we use surpluses to grow government, when the next downturn comes, we make cuts.
Hughes said the purpose of the state appropriations and tax limitation act, first enacted in 1989 was (a) to limit state mandated property taxes under the minimum school program, (b) limit state government appropriations to population and inflation growth, and (c) limit state bonded indebtedness. “The measure was amended in 2004 and many predicted we would never see the day when the limitation would be a factor in the budgeting process. Well, here we are in 2006 and after a 17% increase in state spending this year, we have arrived at that cap,” Hughes said.
Outside of Transportation and Education, which are exempt from the limit, we are currently only about seven to ten million dollars under the cap. Hughes warned that we are arriving at the cap and he urged policymakers and the public to not give in to the temptation to lift the cap.