Tax Cut
President Valentine's $225 million tax cut proposal (eliminating the sales tax on food and not replacing any of the revenue through increases elsewhere) increases support and momentum for tax relief. Most House members seem eager for a significant tax cut. Therefore, at this point at least, the amount of tax relief that Utahns will receive would seem to turn on the degree to which the Senate supports the President's plan.
I have asked the Legislative Fiscal Analyst to come up with some ways that the State could absorb the $225 million cut in sales tax.
I'm not sure it would make as much sense to take the entire cut in the sales tax arena as it would to spread the cut between sales tax and income tax. Because most of the State's surplus is coming from the income tax (and because the income tax is a significant drag on economic development), my preference would be to cut equal amounts from the sales tax on food and from the personal income tax. While my target has been a more meager $45 million from each (for a $90 million on-going cut, plus a refund to the taxpayers of the current year's surplus), I will eagerly watch to see what kind of support Senators give the President's plan.
UPDATE (11/16/05): On the Senate Site, President Valentine discusses three options on the table regarding repeal/mitigation of the sales tax on food. Along with the two options discussed above and in the previous post, the third option is a refundable credit for the poor.
This would be better than nothing, but I think it runs into some problems. First, I think it would be administratively burdensome to handle and monitor. Second, many of the people who most need the credit typically don't file anything with the State. My guess is that many of these people still wouldn't file and, therefore, wouldn't receive the credit. Third, a credit effectively means that the people who can least afford to do so will loan the State money for the year until the State returns it. None of these problems is insurmountable. They just suggest that we need to do a little more thinking.
As our State's esteemed Senate President says, "I expect we'll work out the details in a rational, deliberative, collegial manner through the normal legislative process." I believe that, and I am pleased that the topic is on the table.
UPDATE (11/23/05): Several articles have been written about removing the sales tax on food. I was glad to see that this one mentions Dave Iltis. His thinking on this topic has been very impressive and helpful.
A couple of clarifications on the article. Not that they really matter that much, but . . .. As I discussed here, Speaker Curtis came up with the plan and gave it to me, not the other way around. Dang it. (And going over Mr. Iltis's old e-mails, it looks like he very well might have planted the original seed). More importantly, by no means do I question whether Utah could take a $250 million tax cut. We could and should. My point was that we cannot take it all from SALES TAX. We need to spread the cut between the sales tax and the income tax -- which is where most of the surplus is coming from.
I have asked the Legislative Fiscal Analyst to come up with some ways that the State could absorb the $225 million cut in sales tax.
I'm not sure it would make as much sense to take the entire cut in the sales tax arena as it would to spread the cut between sales tax and income tax. Because most of the State's surplus is coming from the income tax (and because the income tax is a significant drag on economic development), my preference would be to cut equal amounts from the sales tax on food and from the personal income tax. While my target has been a more meager $45 million from each (for a $90 million on-going cut, plus a refund to the taxpayers of the current year's surplus), I will eagerly watch to see what kind of support Senators give the President's plan.
UPDATE (11/16/05): On the Senate Site, President Valentine discusses three options on the table regarding repeal/mitigation of the sales tax on food. Along with the two options discussed above and in the previous post, the third option is a refundable credit for the poor.
This would be better than nothing, but I think it runs into some problems. First, I think it would be administratively burdensome to handle and monitor. Second, many of the people who most need the credit typically don't file anything with the State. My guess is that many of these people still wouldn't file and, therefore, wouldn't receive the credit. Third, a credit effectively means that the people who can least afford to do so will loan the State money for the year until the State returns it. None of these problems is insurmountable. They just suggest that we need to do a little more thinking.
As our State's esteemed Senate President says, "I expect we'll work out the details in a rational, deliberative, collegial manner through the normal legislative process." I believe that, and I am pleased that the topic is on the table.
UPDATE (11/23/05): Several articles have been written about removing the sales tax on food. I was glad to see that this one mentions Dave Iltis. His thinking on this topic has been very impressive and helpful.
A couple of clarifications on the article. Not that they really matter that much, but . . .. As I discussed here, Speaker Curtis came up with the plan and gave it to me, not the other way around. Dang it. (And going over Mr. Iltis's old e-mails, it looks like he very well might have planted the original seed). More importantly, by no means do I question whether Utah could take a $250 million tax cut. We could and should. My point was that we cannot take it all from SALES TAX. We need to spread the cut between the sales tax and the income tax -- which is where most of the surplus is coming from.
posted by steve u. at 11/15/2005
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2 Comments:
I'm glad that several proposals will be debated in order to achieve what is politically achievable. That is how our system of government is supposed to work. Thanks for your leadership on this issue. At least we are actually talking about a tax cut now. It wasn't even a consideration a few weeks ago.
A retired economics professor writes here that a food sales tax cut is more for social reasons than economic ones. He doesn't much care for it. But he seems to ignore the success other states have had with cutting the sales tax on food.
I agree that the rebate thing is a nasty boondoggle. We would force those that can least afford it to pay up front and then go through the bureaucracy to get their money back. As you pointed out, many would not go to the trouble. I guess we could smugly think, "Well, that's their own fault," but I hardly think that makes for good public policy.
Fairness arguments are important, but they aren't the only ones to consider. Leaving more dollars in the pockets of middle-class families will benefit the State's economy. People do better with money than government does -- in terms of spurring economic activity and in picking economic winners and losers.
I do like Rep. Dougall's option D -- because it adopts that type of neutral approach. Repeal of the sales tax on food could fit nicely w/ Rep. Dougall's alternative.
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