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Saturday, September 23, 2023

Tax Reform Special Legislative Session: Review & Observations

Ronald Mortensen, Ph.D.Co-Founder,

January 25, 2020

The following is the author's detailed review of and observations on the passage of Utah’s tax reform bill by a special session of the legislature.

Democrats - more transparent and more responsive to their constituents

Democrat legislators were much more open and transparent than were their Republican counterparts during the multi-month tax reform process. They actually listened to what their constituents were saying and acted on that. On the other hand, the Republican governor and legislators, with the exception of those in highly competitive districts, only listened to powerful business interests, legislative staff and possibly to a few big donors. The result was that, as Senator Todd Weiler openly acknowledged, Republicans now find themselves ahead of public opinion.

When it comes to transparency, the Republicans have always lagged behind their Democrat counterparts. The Republican Senate caucus is always closed to the public and the House caucus is usually closed—both were closed on the night of the special session. The Democrats’ caucuses are open.

Because of this, those attending the Democrat House caucus on the afternoon of the special session, saw Republican Norm Thurston come into the Democrat caucus, whisper something to the minority leader and then watch as he and Representative Jennifer Daily-Provost left the caucus room. Later in the evening, Thurston and Daily-Provost could be observed talking at the back of the House chamber. Shortly, thereafter Representative Daily-Provost proposed to replace the Republican bill with a substitute – the 5th substitute. That substitute would have required big businesses to help shore up the general fund rather than giving them a complete pass and putting the burden on middle income taxpayers as the Republican bill, which was passed, does.

Washington style politics are now embraced by Utah Republicans

Utah Republicans have now fully and very openly embraced Washington style politics.

  • Under current Republican control, it is the citizens of the state of Utah who serve the government and the powerful business interests favored by that government.

  • Republican leaders are fixated on ensuring that government will continue to grow and guaranteeing that it will never have to tighten its belt during economic downturns.

  • The Republican governor and Republican legislators load middle-class Utahs down with ever more taxes in order to support big government, corporate socialism and Utah’s elites.

  • The Speaker rules the Utah House with an iron fist just as Nancy Pelosi does in Washington.

  • Republican legislators pass a massive tax reform bill that they haven’t read in order to find out what is in it without a single Democrat voting for it. And the fiscal note for the bill is not finalized until after the Senate passes it and it has been taken up in the House.

  • The Republican governor and Republican legislative leaders misuse $150,000 of taxpayer funds to create a propaganda campaign disguised as a listening tour. This is done in apparent violation of state procurement rules and without an appropriation of funds. They then deny doing it.

Senate Action on the Bill – Democrats push back; Republicans toe the line

The Republican controlled Utah state senate is totally focused on (1) ensuring that the state revenues are always rising, (2) that government programs are always growing and (3) that state government never has to reduce spending or programs during the bad times.

In his presentation of the Republican’s tax reform bill to the Senate, Senator Lyle Hillyard carried out a mini-filibuster waiting for the 4th substitute of the bill to be finished so the body could pass it—which they did just minutes after receiving it. Citizens were given no time to review the final legislation before it was passed.

Focus totally on ensuring that government has the funds to continue growing

Hillyard made it crystal clear that for Republican’s tax reform is all about ensuring that government has growing, stable revenue sources that will hold government harmless during economic downturns. They achieve this by imposing the state sales tax on food, gasoline and a handful of service providers who lack the political power to fight back.

It quickly became apparent that the personal and corporate income tax cuts were largely designed to do two things: First, lock in the Republican votes necessary to pass the Republican’s tax reform bill. Second, prepare the field for future negotiations with the public education establishment in order to remove the constitutional earmark that dedicates the entire income tax to public education. This would be done in exchange for authorizing local school districts to automatically increase property taxes every year without a truth-in-taxation hearing.

The one-time payments that certain individuals who pay state income tax will receive in early 2020 are just a small percentage of what taxpayers overpaid because the legislature refused to restore the dependent credit in 2018 (roughly $200 on a $2,000 overpayment). The state keeps the major portion of the overpayment and its billion dollar surplus.

While presenting the bill, Hillyard repeated the discredited claims that sales tax growth has not kept up with population growth and that people were no long buying goods. In addition, he failed to acknowledge that huge chunks of sales tax revenue had been given up by Republican legislators in order to give big businesses an estimated half-billion dollars in sales tax exemptions. There would be no need to increase sales taxes on food or gasoline if these exemptions were eliminated.

Blames drop in child births and an aging population for the need to tax services

Hillyard argued that Utahns are having fewer children which further reduces spending for goods. In addition, the state’s population is aging and old folks spend their money on such things as medical services which aren’t taxed.

Acknowledges that online sales tax money has already spent or used for tax cuts for big business

Hillyard acknowledged that the online sales tax money has already been spent on items in the current budget and on a sales tax cut for big businesses. Therefore, the task force had to find new sources of general fund revenue that go up at the same rate as population growth.

He further argued that in order to reduce the income tax, sales tax revenue had to increase. The tax reform bill achieves this by taxing food, gasoline and a few services. Under the bill, general fund revenues will be more stable and will constantly ratchet up as food and gas prices increase. He expressed his disappointment that they weren’t able to tax even more services.

Puts a positive spin on income tax and food tax rebates with a little fuzzy math

Hillyard noted that a one-time payment was now included in the bill to offset some of the extra individual income taxes that will be paid on 2019 income. This was only necessary because the legislature refused to reinstate the dependent credit in either 2018 or 2019. Under this bill, taxpayers will only get a small portion of what they overpaid back. A partial food tax credit will be paid in July and $500,000 will be allocated to Workforce Services so it can help people eligible for that credit to claim it.

Using fuzzy math, Hillyard argued that even though the sales tax rate on food almost tripled (from 1.75% to 4.85%) that it won’t triple the price of food so it is not really a tripling. Besides, the sales tax on food is a stable source of revenue since everyone has to eat even in the bad times. Based on this bill, it would seem that Governor Herbert and Legislators are totally lacking in compassion for individuals who may be struggling to make ends meet during economic downturns otherwise why would the tax their food?

Justifies sales tax exemptions granted to business and a sales tax on gasoline

Hillyard justified huge sales tax exemptions given to big businesses. He then said that the imposition of a 10 or 11 cent per gallon sales tax on gasoline is necessary because the existing gas tax isn’t providing enough money for roads. He failed to acknowledge that in 2018, the people of Utah had voted 65% to 35% against a 10 cent a gallon increase. Efforts will be made to replace the sales tax on gasoline with a fee based on miles driven in four or five years in order to tax alternate fuel vehicles. However, as Ronald Reagan said “Government programs, once launched, never disappear. Actually, a government bureau (or tax in this case) is the nearest thing to eternal life we'll ever see on this earth!”

Hillyard said that additional revenue will be collected for roads by requiring that there be three people in a vehicle in order for the driver to use the express lane at no cost. Months earlier another state senator hold told constituents that this would be in the bill and that in future years additional freeway lanes will be designated as toll lanes.

Argues that not everyone benefits from roads

Senator Hillyard argued that using sales taxes paid on goods not related to roads to pay for roads is unfair because people paying those taxes don’t benefit that much from the roads. He said that an agreement was made to limit the increase in taxes on diesel fuel to six cents a gallon for two years and then increase it to ten cents because diesel is cheaper in other states. It didn’t hurt that the trucking industry had good lobbyists whereas the citizens didn’t have anyone at the table to push back on the gas tax.

More services will be taxed

A number of additional services will be taxed including shipping and handling on taxable goods, parking, dating referral services, identity theft protection, Uber, etc. These taxes are on final consumption according to Hillyard. Actually, these services are the weaklings in the herd and easiest for the legislative coyotes to take down. They will be back for the stronger members of the herd in order to impose service taxes on them at a later date.

Five Million dollars to buy votes of rural legislators and county government officials

Rural counties will receive $5 million in funds to help them with roads. This is another example of Washington style politics. Can anyone say “Cornhusker Kickback?”

Argues that a reduction in income tax revenues for public education helps public ed

Even though this bill reduces income tax revenues which are dedicated for public education, according to Hillyard, it actually helps public education. It does this by strengthening the general fund so it can be tapped to help support public education when income taxes drop during an economic recession. This is why the sales tax on food is necessary. It won’t drop all that much when people lose their jobs because people still have to eat.

Property taxes are the governor’s and legislature’s ace in the hole. The idea of a state property tax for education was floated by a lobbyist for the powerful Utah Realtors. Senator Ann Millner is working on a bill that makes it easier for local school districts to raise property taxes in return for giving up the income tax earmark for education. That way the governor and legislators can tap income tax money to grow government while homeowners are being priced out of their homes due to constantly increasing property taxes. Can anyone say, Proposition 13?

Increasing property taxes deferred to another day in order to pass this bill

Hillyard noted that there is nothing in this bill about property taxes. Of course, that wasn’t included since it would have killed the bill. Now that sales taxes have been increased, property taxes will be dealt with in the regular session. In fact, Senator Millner is already working on a bill to end the constitutional earmark for the income tax. Her bill will reportedly authorize local school districts to raise property taxes automatically each year by the rate of inflation—without holding truth-in-taxation hearings in return for freeing up the income tax.

Tax reform task force will continue in its quest to find more things to tax

Senate President Stuart Adams touted the public vetting that this tax reform bill had received. In response to a question from Senator Anderegg, Adams said that there was no intention to repeal the tax reform task force. Therefore, it will continue in its quest to tax services and to drive people from their homes by increasing property taxes each and every year. Anderegg said that since the food tax credit would be partially paid up front and because the task force would continue to find services to tax that he would vote for the bill.

Senator Weiler notes that the legislature is ahead of public opinion on tax policy

Weiler referenced the elite’s favorite, Natalie Gochnour, and then said that he was convinced that the poor would be better off once the sales tax was reinstated on food due to the credit they would receive. He also noted that the governor and legislators are ahead of the public on this in spite of spending $150,000 in taxpayer funds to shape public opinion. He said that legislators will be criticized but food and gasoline have to be taxed in order to avoid cutting social programs.

Senator Davis’ amendment to require businesses to pay more fails

Senator Gene Davis tried to amend the bill in order to increase the corporate franchise and corporate income tax rates. He failed. He also pointed out that much of the new sales tax revenue from the online sales tax had been used to give additional sales tax exemptions to big businesses. The Republicans justified this by saying that it was done to prevent the windfall from online sales taxes from being spent on government programs. Hillyard opposed the amendment and it was voted down. Big business interests had remained untouched.

Hillyard reaffirms bill’s purpose is to guarantee growth in state funding

Hillyard summed up by saying that President Adams was a great leader, that Olene Walker gets credit for the rainy day fund that helps ensure that the state will not have to cut back its spending during times of economic downturn and that the income tax needs to be supplemented by general fund revenue in the bad times so schools are held harmless. Nothing was said about the people paying for all of this—mainly middle-income taxpayers.

Senator Fillmore is proud to vote for the biggest tax cut in the state’s history

Speaking to explain his vote, Senator Fillmore said “I am proud to vote aye”—because this is the largest tax cut in the history of the state.

Senator Harper votes for the bill because people are better off under it

Senator Harper said that he was voting yes because people are better off under this bill.

Senator Iwamoto votes “No” because of the harm done to the most vulnerable

Senator Iwamoto said that it was important to look at sales tax exemptions granted to big businesses, the impact of the sales tax increases on indigenous people who live in remote areas and have to drive long distances and on the elderly who are among the single filers who may pay more taxes under this bill.

All senate Democrats and two senate Republicans vote “No” on the bill

The tax bill passed the Senate by a 2/3 majority by getting 20 votes. All Democrats and two Republican Senators (Thatcher and Henderson) voted against it. Neither Henderson nor Thatcher spoke against the bill. When the bill was voted on a second time later in the evening due to an amendment made in the House it only got 19 yes votes because Senator Okerlund had left. Therefore, on final passage it failed to get a 2/3 majority. However, this didn’t matter because the bill failed to pass the House by a 2/3 majority.

House action – Democrats push back, Speaker controls Republicans

House Sponsor not sure what is in the bill

When the bill got to the House, the bill’s sponsor, Francis Gibson, gave a short explanation of it. He tried to explain why the new gasoline sales tax was not really an increase. He then said that the total tax cut was $255 million. Therefore, the cut went from $80 million to $160 million ongoing then to $255 million ($160 million ongoing and $95 million one-time funding) in order to get the votes needed to pass.

The day after the bill passed, legislative leaders were saying the total cut was $240 million. That includes $80 million one-time money for a limited rebate for those families that have dependents. What they didn’t mention was that many of these families will be paying up to $1,000 in extra income taxes for the second year in a row and all they get back is $200 with the state pocketing the other $1,800.

It is important to understand that the $95 million or $80 million or whatever amount was added to the bill was done in order to buy wavering members’ votes and to give members cover by allowing them to repeat over and over again that this is the biggest tax cut in the state’s history. This $95/$80 million figure shows that legislators, including the bill’s House sponsor, didn’t know what was in the bill until they passed it because the fiscal note wasn’t completed until hours after the special session had been called to order.

There was never any talk about the one-time tax cut for 2019 income taxes until I sent every legislator a series of questions. A number of these questions essentially asked why they were taking the income tax windfall that resulted from their failure to restore the dependent exemption for the second year in a row. I also pointed out that no one would see any noticeable tax reduction until their income taxes were filed in 2021. So, it could be argued that my questions resulted in the legislature rebating $80 million to taxpayers who were the victims of its failure to restore the dependent exemption in 2018 like they should have.

Democrats were the only ones to openly fight back against the bill in the House

The Democrats in the House offered numerous amendments. All failed. Finally, Jennifer Daily-Provost proposed a 5th substitute that would have deleted the sales tax on food, increased the sales tax rate on aviation fuels, increased the severance tax rates on oil and gas, increased the tax rate for radioactive waste facilities, etc.

Her substitute bill was the only significant attack mounted in the House against Utah’s, Republican created corporate socialism but it failed by a vote of 21 for and 46 against. Prior to the motion to substitute the bill, Republican Representative Norm Thurston was seen talking with Daily-Provost which, as noted earlier, may explain what their earlier meeting during the Democrat caucus was about.

Several House Republicans spoke in favor of the bill. Melissa Ballard praised all aspects of the bill including the fact that it helps give the state a stable source of income. She concluded by saying that if it didn’t pass there wouldn’t be money for transportation.

All House Democrats and 11 Republicans vote against the bill

The bill passed the House by a vote of 43 to 27 which was 7 short of a 2/3 majority required for the bill to take effect immediately. All House Democrats voted against the bill along with 11 Republicans—Coleman, Dunnigan, Eliason, Hall, Judkins, Lyman, Pierucci, Quinn, Thurston, Ward and Winder. Many of these legislators are in competitive districts and one is running for Congress. None of the Republicans voting against the bill spoke against it. The bill was then sent back to the Senate because it had been amended in the House and the Senate then voted 19 to 7 on final passage. As noted above, this was one short of a 2/3 majority since Senator Okerlund, who had originally voted for it, had departed.

Governor and legislative leaders “buy” and coerce enough votes to pass the bill

So, despite strong public opposition, the governor and legislative leaders finally cobbled together a bill that garnered enough votes to pass. They did this by “buying” the votes of numerous legislators through the addition of larger income tax cuts ($80 million ongoing to $160 ongoing funds), $80 million one-time funds for income tax rebates on 2019 taxes and pre-bates on food tax credits, $5 million for county roads, etc. Reportedly legislative leaders also threatened legislators with loss of committee chairmanships and assignments, ability to move legislation in the 2020 general session, etc. In addition, according to a reliable source, lobbyists were told to get behind the legislation or else. Talk about Washington style politics.

Big winners are government and big businesses; losers are middle class taxpayers

The big winners in this exercise are 1) state government which has a larger, more stable revenue stream and 2) the states’ big businesses that kept all of their exemptions while pushing still more of the tax burden onto an already overstressed middle class.

The losers are the middle class taxpayers because their short-term gains will end up being long-term pains as they are forced to pay more and more and more to support government and Utah’s corporate socialism. Had public opposition not been so great, the income tax cut would have been a paltry $80 million rather than $160 million ongoing and $80 million one-time. That extra $160 million ($80 million ongoing, $80 million one-time) is money that they were planning to spend while pleading poverty to justify new and higher taxes.

In conclusion, Washington style politics is alive and well in Utah. The top priorities for Republicans now appear to be growing and sustaining government while promoting corporate socialism. This is alienating them from many of those who have traditionally supported Republicans without question.

Democrats on the other hand are basking in the bipartisan glow resulting from their opposition to increased sales taxes and support for maintaining high levels of public education funding. However, this will likely quickly disappear unless a bipartisan referendum to undo the bill gains traction. If that happens, then the bipartisanship that this bill has generated will likely continue and Democrats will be well position to make further gains in Utah.

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