Republicans Debut Tax Reform Package With 3.1% Sales Tax Rate, Income Tax Cut
With little more than two weeks left in the legislative session, Republican lawmakers released a massive sales tax reform package late Wednesday that would expand state revenue sources while lowering the overall sales and income tax rate.
“This is a result of changes in our fundamental economy,” said Rep. Robert Spendlove, R-Sandy, one of the three Republican lawmakers who put the package together. The bill was made public Wednesday night.
The legislation is considered a top priority of Gov. Gary Herbert and Republican leaders, who are looking to bolster the state’s beleaguered general fund. Financed through sales tax, the general fund has been declining over the last few decades as consumer habits have shifted. It pays for everything outside of education — from roads to public safety.
The centerpiece of the legislation will be a combination sales and income tax cut with offsets for lower- to middle-income Utahns. The income tax would be lowered from its current 4.95 percent to 4.75. Sales taxes would be reduced from 4.75 to 3.1 percent. About 15 current sales tax exemptions would also be on the chopping block.
To lower the sales tax, the bill will expand the overall base by taxing a gamut of services that are currently untaxed — things like attorney fees, cosmetic surgery, pet grooming, real estate transfers, and a one percent tax on health insurance.
Taxes on media streaming services like Netflix and Spotify are also included in the package.
“We want to cover every major part of the economy,” Spendlove said.
The bill is designed to be revenue neutral, meaning it will not have a positive or negative impact on state coffers. That means a $225 million tax cut originally desired by the governor and Republicans may not materialize.
But lawmakers estimate a 1.65 percent sales tax reduction would save a median Utah household — a family of three with an income of about $65,000— about $634 a year.
“It tends to be higher-income families and individuals that use services,” Spendlove said.
Despite a nearly $1.1 billion surplus, lawmakers have been cautious about over-promising on tax cuts after seeing a $200 million drop in revenue earlier this month.
To sweeten the deal, Republicans are throwing in an earned income tax credit for lower-income Utahns and an expanded retirement credit for seniors.
Some Democrats have already raised red flags about further trimming the income tax — which already received a slight cut in 2018 — which could affect education funding.
Asked whether lawmakers had the political will to push through a big rewrite of the tax code after a bruising fight over Medicaid earlier this session, Spendlove said it’s the “number one priority” for top Republican leaders in the final weeks of the session.
“They are 100 percent on board,” he said. “We’re working together and we will make this happen. It will happen.”