Sen. John Valentine, R-Orem, has said his proposed food tax hike would be revenue neutral because lower-income Utahns would be eligible for tax credits to offset their increased expense.
Valentine said he's trying to stabilize the state's sales tax base, but critics fear restoring the sales tax on food would hurt already financially strapped families every time they go to the grocery store; many might not file for the tax credit.
The motor fuel tax change would result in higher prices at the pump. But that would bring money from out-of-state motorists traveling in and out of Utah, as well as from Utahns themselves.
The Salt Lake Chamber has supported an increase in the gas tax since 2006, because the current 24.5-cent rate set in 1997 hasn't kept up with inflation. The chamber estimates the actual buying power of the tax is less than 15 cents a gallon.
The talk of tax increases comes as lawmakers face an as-yet unknown drop in anticipated revenue.
Both the governor and legislative leaders agreed late last year that revenue would grow by $300 million in the budget year beginning July 1, a projection the governor used to build his $12.8 billion budget.
That, however, was before Congress passed last-minute legislation on New Year’s Day restoring a tax cut to most Americans but raising rates on those earning more than $400,000 as individuals or $450,000 as a family.
Lawmakers had been warned that no action by Congress to avoid the so-called “fiscal cliff” of tax increases and spending cuts set to take effect in 2013 would have meant Utah would face a $250 million shortfall in the upcoming year.
Still, the federal tax increase approved as part of the deal, combined with Congress’ decision to let what was described as a “payroll tax holiday” lapse, is now expected to slash revenue estimates as more money goes to Washington rather than state coffers.
The money question
An earlier estimate by legislative fiscal analysts suggested the $300 million in new growth could plummet to just more than $100 million, a number based on more taxpayers seeing an increase.
“That leaves us really kind of in a limbo,” Senate Budget Chairman Lyle Hillyard, R-Logan, said. Spending will have to be limited to last year’s levels, he said, until the revenue estimates are updated in mid-February.
That means lawmakers won’t know until toward the end of the 45-day session whether they’ll be able to fund key budget items like the estimated $137 million needed to cover expected enrollment increases in public schools.
Juliette Tennart, deputy director of the Governor's Office of Management and Budget, said the tax increases passed by Congress represent "funds that might have gone to going out to eat on a Friday night" and other discretionary spending for many Utahns.
Still, Tennart said she was confident that even though the budget situation is more challenging, it can be managed. She said she was more concerned about the ongoing impact of other budget issues pending in Washington, including looming spending cuts.
The governor said he's "cautiously optimistic" the state will still hit the $300 million mark for new revenue because the gridlock in Washington is making Utah more appealing to businesses.
"In some kind of perverse way, as we see things kind of rattle around out there in the marketplace, Utah looks like the Rock of Gibraltar. We are built on a solid footing, a foundation of fiscal austerity," Herbert said. "We live within our means."
As part of the Deseret News' coverage of the Legislature, we're taking an in-depth look at each of the five issues during the coming week.
Monday: Early childhood education
Tuesday: College and career readiness
Wednesday: Economic development
Thursday: Health care
Friday: Intergenerational poverty
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