Salt Lake City, Utah – February 11, 2021 – Utah Tax Commission data vindicates last year’s historic sale tax referendum.
Shortly before Christmas 2019, Utah lawmakers passed a controversial Bill that sought to radically shift Utah tax policy by applying sales tax to a handful of services in Utah, as a first step to taxing all services. The Bill, which also re-instated the sales tax on food and imposed the sales tax to gasoline, was passed during a short special-session of the Legislature, over the objection of thousands of Utah citizens, and warnings by government economists that the data used to support the measure was false. In response, Utah citizens launched a historic referendum, gathering more than 120,000 signatures from around the State in just a few short weeks, prompting the legislature to overturn the law.
Lawmakers and the Governor’s office claimed that Utah was facing a sales tax “fiscal crisis,” and had no choice but to pass the controversial measure. And, in order to make their case, they deliberately disregarded huge amounts of online sales tax revenue.
A year later, actual sales tax data vindicates the referendum, and debunks the claim of crisis. Contrary to the dire predictions of government “experts,” Utah sales tax collections soared to all-time highs of nearly $3.1B during the 2020 fiscal year. Utah sales tax collections continue the decade long trend of growing nearly four times faster than Utah population. This, coupled with historic income tax collections, has produced billion-dollar surpluses for multiple years. Hardly the crisis predicted by elected officials.
It’s been said that the “whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary.” H.L. Mencken. Such was the case for the sales tax debacle of 2019. Utah’s tax system is not broken. There is no need to impose a new tax on all services in Utah. Luckily, Utah referendum law allowed discerning Utah citizens to veto one of the worst pieces of tax legislation in Utah history
Over the past year Utah legislators and Governor Herbert have provided multiple excuses for adopting radical and risky tax reform measures in our state. Each of these excuses have been debunked as incorrect or greatly exaggerated. (See “Debunked Myths of Tax Reform“) The last excuse being advanced is the claim that the Tax Reform Bill will reduce Utah taxes by $160M over the next two fiscal years. This, like all of the other excuses, is a myth.
The Tax Reform Bill is not a tax cut. Base on analysis by Utah Legislative Watch, if allowed to stand, the tax reform bill will increase the tax burden on Utahans by $330 million dollars during fiscal years 2020 and 2021. ULW’s research found that, in order to arrive at the claimed $160M tax saving figure, the Legislature has grossly underestimated the effect of new taxes and grossly overestimated, or misstated, the claimed income tax savings.
The most obvious error in the accounting is that it counts, as a tax cut, adjustments to our state income tax codes that are two years overdue.
You may remember that the federal government passed sweeping tax reform in 2018. Among other things, the new federal law eliminated personal exemptions. Utah lawmakers failed to adjust for the federal changes, effectively raising Utah income taxes by $120M in 2018. The legislature failed to act again in 2019, costing Utahans at least another $120M in increased income taxes. The Tax Reform Bill finally makes the adjustments (effective for 2020) that are two years overdue. Incredibly, however, the Legislature and our Governor are claiming that this long overdue correction is a $132M tax cut.
Let’s do the math:
2018 Increase due
to Inaction: $120M
2019 Increase due
to Inaction: $120M
2020 Increase if
no Action: $132M
Action finally taken: ($132M)
Total Effect $240M – (OVER-TAX SINCE 2018)
The claimed $160M tax cut is nothing more than a shell game. By not honestly reflecting the effect of legislative inaction since 2018, our lawmakers and Governor have re-branded a $240M income tax increase into a claimed $132M tax cut. This single adjustment, alone, debunks any claim that the Tax Reform Bill is a tax cut. The Tax Reform Bill is radical, risky, and unneeded. Contrary to claims made by the Legislature and our Governor, it is also a massive tax increase. Utah deserves better.
Over the past year, our Legislature and the Governor’s Office have tried to convince Utah Citizen’s that our tax system is in crisis and must be fixed. Each of the excuses given to try to justify radical and risky tax reform have been debunked by the the State’s own data and experts. Let’s review:
EXCUSE 1: Utah is
facing a “fiscal cliff” because sale tax collections are declining.
FALSE! Data from the Utah State Tax Commission clearly shows that sales tax collections have been steadily increasing, and are at record levels.
EXCUSE 2: Sales of taxable goods are declining. Therefore, we must tax services.
FALSE! While it is true that the mix of goods to services has declined since the 1960’s, the decline largely occurred between the mid 1980’s and 2000. Since the mid 2000’s, the mix has stabilized and sale of taxable goods in recent years is rising. Moreover, lawmakers already adjusted for the change in the mix by raising the sales tax rate years ago.
EXCUSE 3: The General Fund is not growing fast enough!
FALSE! As pointed out in a report from the Office of the Utah State Auditor, taxable sales and sales tax collections (without taxing services) has kept pace with Utah’s economy for the past 50 years. More importantly, the report pointed out that the perception of slow growth in the General Fund is a result of the deceptive practice of Legislative Earmarking, which diverts money from the General Fund and, therefore, improperly skews the numbers.
EXCUSE 4: We aren’t
collecting enough money to provide for Utah’s growing population.
FALSE! Dollar for dollar tax collections, since 2010, have grown nearly 70% while Utah’s population has grown roughly 14% in the same period. We don’t have a tax collection problem, our State government has a spending problem!
EXCUSE 5: We have an allocation problem.
FALSE! While it is true that Utah’s Constitution limits taxes on income for the support of education, this hasn’t created a crisis. As noted above, when properly accounted for, we are collecting more than enough taxes to fund government programs. After all, for fiscal years 2018 through 2019, Utah has run a $1.6 Billion dollar surplus, has an economy that is the envy of the nation, and has a AAA bond rating, all achieved under the current tax system. Utah’s tax system is NOT in crisis.
EXCUSE 6: We had to solve the allocation problem, so we had to pass this Bill in a Special Session.
FALSE! The Bill passed in the Special Session does result in $500M being moved from the Education Fund to the General Fund. However, last five pages of the Bill also appropriates the same $500M TO PAY FOR EDUCATION! So, how does this solve the so called “allocation problem,” and why did we need a 200 page bill to spend the money in the exact same way we would have if no bill had been passed?
EXCUSE 7: The Tax Reform Bill that was passed is a tax cut!
FALSE! This is, perhaps, the biggest falsehood of all. Analysis of the fiscal note of the Bill reveals that certain items have been left out of the computation or have been seriously under or overestimated, which make the Bill look like a tax cut on paper. The Tax Reform Bill is not a tax cut. This myth will be further explained in a subsequent article. Stay Tuned!
Utah Legislative Watch Director, Brett W. Hastings, was honored to participate in a tax reform Round Table sponsored by Keep My Voice, a conservative organization founded to advocate for Utah’s historic caucus system. The panel included State Senator Curtis Bramble (R-Utah/Wasatch County), State Representative Robert Spendlove (R-Salt Lake County), and State Auditor John Dougal. Other panel members included Rusty Cannon, Vice President of the Utah Taxpayers Association, and tax attorney Spencer Evans. The parties appeared to come to a consensus that, although Utah’s tax system can be improved, Utah is not facing a tax crisis, and implementing a broad sales tax on services is risky, and the least desirable of all the potential ideas proposed to reform Utah’s tax system. Watch the full roundtable here.
Utah Legislative Watch is in the process of reviewing hundreds of pages of documents and communications requested from both the Legislative and Executive Branches of our State government. The information requests, filed under Utah’s Government Records Access and Management Act (“GRAMA”) were issued to reveal who commissioned and paid for the very one-sided propaganda materials presented by the Tax Reform Task Force. These materials suggest that Utah’s tax system is broken and must be fixed, an assertion not supported by Utah tax data.
Although a complete review has not yet been completed, one disturbing fact that has emerged is that the information was commissioned and paid for by the Governor’s Office of Management and Budget (Utah’s Executive Branch) and was then provided to the Legislative Tax Reform Task Force for dissemination across the State.
As more fully detailed in an article by the St. George News, Utah Legislative Watch is questioning why our Executive and Legislative branches of government colluded to produce a very one-sided, and misleading, message.
Collusion between our Executive and Legislative branches of government should be troubling to all Utahans. The three branches of government are are specifically designed to act as a check and balance on each other. They should not collude to spin a message to convince the public that a crisis exists, when one does not. Government and politics is an area of ideas. If data and messaging are manipulated, there can be no fair debate. Without a fair debate, only bad policy will follow.