Opposition continues to run strong against the proposed tax reform promulgated by a number of state legislators. There are obviously uncertainties about eventual passage.
Meanwhile, there is a fair amount of general agreement about the need for tax reform. Services, versus goods, are comprising an ever-growing proportion of the total economy. The percentage of Utah’s overall economic activity subject to the sales tax continues to shrink.
Perhaps this heated issue can be approached incrementally. Take an initial, modest bite at the apple this year, see how that goes, and consider next steps in the future. My proposal would increase sales tax revenues while reducing income taxes. In general terms, this is what the tax reformers seek.
My proposal is that dreaded thing, a compromise. It will surely hugely disappoint the reformers for not going nearly far enough. Opponents of reform, on the other hand, will likely oppose this, too. Of course, any proposal opposed simultaneously by zealots on both sides of a controversial issue is always worthy of serious consideration.
I propose the sales tax be increased for a single good: gasoline. The increase would be significant: The new/incremental/additional sales tax would be 10%. In other words, a gallon of gas with pre-tax price of $3.00 would have 30 cents of new sales tax on top of the existing sales taxes (and other applicable taxes).
I don’t know how much that would add to the state’s coffers in a given year. But I’m sure it can be estimated. Purely for illustrative purposes, let’s say it’s $20 million. The next step would be to reduce state income taxes by $20 million. I propose that be done by raising the threshold of income exempt from Utah income tax. This would benefit everyone who paid state income taxes last year. But it would benefit low-income Utahns the most, increasing the number of Utahns who don’t owe any Utah income taxes. The beneficial impact would be larger for low-income Utahns, except the lowest-income Utahns who are already below the income tax threshold. Income tax rates, meanwhile, would remain unchanged.
Further, I propose to retain the income tax credit that is part of the current reform proposal, so that low-income Utahns impacted by the higher price of gasoline can make themselves whole via the tax credit.
I believe there is a dominant sentiment in the Legislature that market forces work and that incentives matter. I agree with that sentiment. When a given product or service becomes more expensive, people consume less of it. That’s why every service sector proposed to become subject to the new sales tax (for instance, lawyers) have complained, lobbied and bellyached about the adverse impact to their particular industry if it became subject to a sales tax and thus more expensive.
A higher gasoline sales tax will translate into less gasoline burned. The benefits of burning less gasoline are almost too numerous to mention. But let’s start with cleaner air. Today our air is killing us sooner, and making us sicker before we die. When we burn gasoline it’s costly to all of us, including via the increased medical expenses we all incur as well as lost work days. In other words, the true cost of gasoline is not just the money we take out of our pocket to pay for it, it’s also these costs that gasoline-caused pollution imposes upon us. This new sales tax attempts to get closer to the true cost of consuming gasoline.
More costly gasoline will let the market decide how to react. Will it be more scooters? More use of public transit? More use of bicycles? More higher-density, closer-in housing? I don’t know. It won’t require new government mandates. Rather, we’ll let the market decide.
Tax reform proponents look like they’re drawing to an inside straight. It’s time to reach a settlement. Let’s go with something for which nearly everyone can claim a victory.
Eric Rumple
Eric Rumple lives in Sandy. He has an MBA from the University of Chicago and is the author of the novel “Forgive Our Debts.”
