Who will win the battle of the tax cuts? The Utah House with its sales tax reduction? Or the Utah Senate with its income tax break?
Well, don't hold your breath. If one body doesn't give in to the other, we'll probably see small cuts in both taxes. Or a reduction in neither.Friday, senators gave preliminary approval of SB102, Sen. K.S. Cornaby's bill that would restore more of the deduction for federal tax paid on state tax returns.
Meanwhile, the House passed HB36, a bill by Rep. Frank Knowlton, R-Layton, that would reduce the state sales tax by one-quarter cent.
Both sides think the other will come around to their way of thinking and ultimately pass their tax cut. But a lot of negotiating must take place before lawmakers adjourn Feb. 22.
Republican Gov. Norm Bangerter has suggested a $19 million tax cut this year. He estimates that fiscal 1989-90 will see more than $80 million in tax revenue growth, so some should be given back through lower tax rates.
Most Democratic senators have strong feelings about Cornaby's approach. "This is a travesty," said Senate Minority Leader Rex Black, D-Salt Lake. "Restoring more of this deduction gives 90 percent of the (tax) return to 10 percent of the taxpayers. It is very inequitable; the worst of the proposed tax reductions."
Cornaby's bill would increase the allowable deduction for federal taxes paid from the current 33 percent to 50 percent. The more federal tax one pays, the more benefit one gets from the deduction. Cornaby's bill would cost about $18 million, within Bangerter's $19 million tax-reduction range.
"Remember, we did away with the deduction completely two years ago so we could afford to remove 85,000 low-income Utahns from the income tax roles completely," Cornaby said. Removing the deduction to "pay" for removing those 85,000 people proved unnecessary, since the state overcollected on income tax by $80 million. "We gave a third of the deduction back last year. Now is the time we can afford to restore more of the deduction," he added.
But Democrats hate restoring that deduction. "This is a rich man's bill, clear and simple," said Sen. Omar Bunnell, D-Price. "If we pass this the Senate should be called the $100,000 Club, because it benefits the wealthy."
The House debate was much more sedate, partly because both party caucuses had agreed beforehand to support the bill.