On Feb. 25 of this year, during a week when stocks first began to tumble on worries the coronavirus might begin to disrupt supply chains, I asked state Senate leaders for their reaction. Did this give them concern that the good times were about to end?
“We worry about that all the time,” Sen. Majority Whip Ann Millner said. She pointed to the great recession of 2008, when the state went from healthy surpluses to a deficit almost overnight. “Events outside of Utah can impact us, as they did then.”
Today, no one would point to 2008 as an example of the worst-scenario rapid decline. What we’ve seen since Feb. 25 has been a stunning reversal. Utah back then
Both numbers have likely gotten worse since then.
In March, according to the Utah Tax Commission, sales tax revenues fell by an estimated 0.4% year over year in the state. That was a small drop, but motor vehicle taxes revenue fell 13%. Expect future reports to be worse across all taxes, given the lack of tourism, the businesses that were forced to close, at least temporarily, and that haven’t done much business since reopening, and the number of people still working from home and no longer driving much.
It’s hard to remember that tax reform dominated the news in Utah only five months ago. It seems like five years, but the problem hasn’t gone away.
Back then, lawmakers had plenty of evidence to show the state’s sales tax collections weren’t growing nearly as fast as its income tax collections, and that the trend was long-term and accelerating.
In Utah, this matters because the state constitution requires that all income tax revenues go exclusively to public and higher education. That leaves everything else, from services for the poor to highway construction, prison maintenance and state employee salaries, dependent on sales taxes.
You remember what happened. In December, after previously unsuccessful attempts and long months of hearings, lawmakers held a special session and hastily approved a reform package that tried to begin fixing this imbalance by, among other things, adding sales taxes to gasoline purchases and increasing the tax on groceries.
They beat a hasty retreat in January, repealing all of that after enough Utah voters signed petitions to force their own repeal vote on the package.
But that doesn’t mean the imbalance went away. What it does mean is that lawmakers may have lost their last window for a while to work out a reform package during good economic times.
Without raising the tax on food (for the record, that was a terrible, tone-deaf idea), the best solution may be what was first suggested -- begin applying sales taxes to services, from haircuts to medical procedures -- and remove the constitutional restriction on the income tax.
Try doing that when a tenth or more of the population is out of work and many more are struggling to get their businesses going again.
What you may have forgotten is that, near the end of this year’s legislative session, as lawmakers were trying not to shake hands or breathe on each other, they passed a bill that would set up a reserve fund to provide steady funding increases for education. Then they made that contingent on voters this fall approving a constitutional change to allow income tax funds to cover programs for children and the disabled, taking a bit of a load off sales taxes.
Today, only a few months later, lawmakers are facing cuts to education and all other state funded programs that eventually may total more than $1 billion.
Will the reserve fund do much in the face of cuts? Will voters open up income tax funds when that might be seen as further short-changing schools?
Back in that February meeting with Senate leaders, they made the point that the income tax is the most vulnerable of all taxes in an economic slowdown. But right now all taxes look vulnerable, and experts say it may take years to recover.
Maybe a new governor will bring fresh ideas to this problem in January. Or maybe everyone will have to wait for the next boom-time before tackling tax reform again.