Get ready for a state income tax hike in 1998.
No, you won't find any of the 104 legislators or Gov. Mike Leavitt endorsing it or even voting for it. But it's coming just the same. And coming because lawmakers and Leavitt did nothing to stop it."My bill is dead," Sen. Dave Buhler, R-Salt Lake, said Friday.
And with the death of SB102 comes a $35 state income tax hike for a family of four in Utah. As lawmakers prioritized where they wanted to spend $10 million on so-called "money bills" - legislation that carries a price tag - they didn't give $8 million to stop an automatic state income tax hike that comes because of federal tax law changes.
Thus, state income taxes will go up.
Leavitt is not apologetic. Historically, he says, Utah has not tweaked its income tax rates or deductions when Congress changes federal tax law. In addition, in the years when federal taxes went up, and thus state taxes went down, lawmakers didn't raise state income tax rates to compensate, either.
Leavitt added that other taxes are going down in 1998. For example, this is the third year of a manufacturers' sales tax exemption phase-in. Also, Leavitt hopes that a bill now under consideration that would provide a research and development income-tax credit also passes this year.
But families won't get those tax breaks, in all likelihood.
The state tax increase comes because Congress gave child income-tax credits: $400 in 1998 per child and $500 in 1999 and beyond. Since Utah bases its state tax on federal taxable income, a federal tax cut leaves more income to be taxed by the state.
The federal credit goes to all but the wealthiest of Utahns. Thus, a family with two children sees an $800 federal tax credit but a $35 state tax hike, almost regardless of income. The more children on tax returns, the greater the federal tax cut and the greater the state income tax paid.
Buhler says Utahns must remember that overall they are still getting an income tax reduction, because the federal cut is much greater than the state income tax increase.
State income tax revenue has exploded in the 1990s. In 1991, the state brought in $777.5 million in personal and corporate income taxes. By 1997 state income taxes were bringing in $1.2 billion, a 37 percent increase.
"It is unfortunate that we have to see this small increase," he says. He is especially disheartened that legislators didn't change the state budgeting process so in the future such "automatic" revenue enhancements are not built into revenue forecasts even before lawmakers start budget hearings. Now, such automatic revenue increases are built into the base budget. Thus, legislators have to take the money out, and that is very difficult to do, Buhler said.
"There were just so many needs" this year that legislators and Leavitt weren't willing to set aside $8 million in fiscal 1998-99, $11 million thereafter, to stop the state income tax increases.
It appears that legislators will, however, change state property tax law to avoid nearly all of an otherwise certain property tax shift from big businesses to homeowners.
That move doesn't require any money, since it would be a tax shift, not a tax cut or increase.
Through changing the "intangible" definition in state law, much of the impact of the State Tax Commission's Wil-Tel decision is nullified.
Along the Wasatch Front the shift wouldn't have had great impact in any case. Now it may only be several dollars a year in increase on a $150,000 house.
But because lawmakers didn't act on Buhler's income tax bill, won't legislators have to say, in all honesty, that they raised state income taxes in the 1998 session? "I'm not saying we raised taxes," said Buhler. "Unfortunately, though, we couldn't stop an income tax increase."