Tax Justice Digest stories about Utah
Last year, Utah replaced its dual income tax system with a five percent flat rate. Earlier this week,
According to Pat Jones, the senate minority leader, had the state not lowered its income tax rates to five percent, and not reduced certain sales taxes,
Meanwhile, education funds (whose primary source is income tax revenues) and general funds are collapsing. As the recession pushes states further and further into the red, key social services are being cut to bare bones so that middle- and low-income families bear the burden.
There was much grumbling at the time about the complexity of all these major tax changes happening over such a short span of time. That grumbling is getting louder. This week the Deseret News is reporting on several problems with the new flat tax structure. Apparently, the 2008 state withholding tables were miscalculated and, more alarmingly, some folks are seeing dramatic increases that they did not expect. As former Utah Tax Commission economist Doug Macdonald says, "We were told that only a few people would pay more. It was like selling a used car -- those pushing the change (to a flat-rate tax) only talked about the good parts of the car, not the bad parts." Clearly all that glitters isn't gold.
Frankly, Utah would be much better off if it expanded its sales tax base to include tanning services. Twenty two states already do so. Admittedly, the 4.7% sales tax rate won't raise as much revenue as the 10% tax, but it would provide advocates of the tanning tax with much stronger footing on tax policy grounds. Given that their 10% tax failed to make it out of committee, it's certainly an idea worth considering.
While reports such as those out of Iowa and Virginia (see “Budget Fixes Worth Embracing”, in this week’s Digest) highlight some of the best ways for states to dig themselves out of their current budgetary nightmares, in many cases it appears that the cigarette tax is continuing to hold on to its title as the single most popular tax to increase among the states. Policy advocates and even many legislators are often careful to frame their support of cigarette tax hikes in terms of fighting smoking or reducing health care costs, but in times as desperate as these, it’s hard not to suspect that revenue needs may be the driving force. The fact is that revenue from the cigarette tax is almost never sustainable over time because the
The three states with the most intense cigarette tax debates at the moment are
As we’ve argued in past Digest articles, there are good reasons for relying on gas tax revenues to fund transportation – at least when an effort is made to offset the tax’s stark regressivity. To the extent that the gas tax falls most heavily on those people who drive the furthest distances, or who drive the heaviest vehicles, there are certainly some advantages to the gas tax. But when the people driving the furthest distances are doing so because they can’t afford to live near their places of work, for example, that advantage becomes much less appealing. In this light, recent news regarding the funding of transportation has been both good and bad. While states are seemingly beginning to come around to the idea that gas taxes will need to be raised to provide an adequate transportation infrastructure, interest in offsetting the tax’s regressivity has yet to pick up steam.
Support for increasing the gas tax has gained some notable momentum in New Hampshire and Massachusetts as of late, and in Oregon, the Governor even included a small gas tax hike in his recent budget proposal.
Unfortunately, while there has been an increasing acceptance of the fact that existing gas tax revenues are inadequate in many states, little notice has been given to the idea of offsetting the stark regressivity of gas tax hikes with low-income refundable credits. This idea was recently made a reality in
It's never too early to begin preparing for future ballot battles, particularly when they are likely to dramatically affect states' abilities to fund public services that residents depend on. Here are three states that might see major ballot battles in 2009 and 2010.
Maine: TABOR Question Appears Likely in 2009
It looks like Maine voters may face a bruising battle over state spending limits in 2009. The "Maine Leads" consulting firm claims to have gathered enough signatures to place a "Taxpayer Bill of Rights" (TABOR) spending cap on the 2009 ballot.
Supporters of this initiative have apparently learned very little from the lessons of two other states making headlines in recent weeks.
Colorado voters gave TABOR a chance, but because of the excessive restrictions it placed on their government's ability to provide valued services, a major, permanent scaling back of the requirement is being voted on this November.
Similarly, though California lacks a TABOR spending cap, the state has plenty of experience with supermajority requirements in its legislature (which TABOR would impose on any tax increase). After the recent budget debacle in California, serious talk has recently surfaced of ending their 2/3 requirement for the approval of state budgets (as explained below). Maine would be wise not to follow down California's obviously failed path.
Fortunately, a strong opposition to the TABOR campaign can be expected. The Maine Center for Economic Policy is very familiar with the issue, having already worked on the front lines of a similar battle when TABOR was on the ballot in 2006. At that time, they authored a report worth revisiting, aptly titled: "TABOR: Not Right for Colorado, Not Right for Maine.
Utah: A Return to a More Progressive Income Tax in 2010?
The Utah Rings True Coalition is beginning the process of getting a graduated rate income tax onto the 2010 ballot. The current, 5% flat rate income tax that took effect this year is defended by numerous lawmakers in the state, despite the huge breaks such a system offers to wealthy taxpayers. The group will have over a year to gather the 92,000 signatures needed.
Utah Voices for Children has authored a variety of important policy briefs on the flaws of the flat-rate system. You can find them here.
California: Recent Budget Gridlock Renews Calls to End 2/3 Requirement for Budgets in 2010
With the recent gridlock surrounding the state budget still fresh in everyone's minds, multiple legislative leaders have voiced an interest in placing on the 2010 ballot a proposal to end supermajority requirements for passing state budgets. Referring to the recent delays the supermajority requirement created in enacting their 2009 budget, Senate leader Darrell Steinberg said "We can't keep doing this. This is ridiculous. It's unproductive."
And support for ending the supermajority requirement isn't coming only from the majority party. Republican state Senator Tom McClintock has said that "The two-thirds vote for the budget has not contained spending, and it blurs accountability … If anything, in past years, it has prompted additional spending as votes for the budget are cobbled together."
Thankfully, the reaction to the idea in the Utah legislature has been notably unenthusiastic. But with the debate still very focused on concerns over the recent “sticker-shock” of rising property tax bills and the possibility of “taxing people out of their homes”, at some point property tax reform is likely to come to the state. So far, that reform appears to be headed in the direction of forcing localities to vote any time the property tax is increased. Perhaps with some work on the part of policy advocates, a more progressive reform (such as a low-income property tax circuit-breaker) could arise out of the discontent in Utah.
Until then, Utahns can at least take comfort in the fact that with home values recently on the decline, their property tax bills can be expected to do the same. If the state were to enact a Proposition 13 style cap on assessment increases, that would by no means be guaranteed, as has been shown in Michigan.
