SALT LAKE CITY — New details, including a hefty price tag, emerged Monday about Gov. Gary Herbert's plan to give Utahns a $200 million sales tax cut and reduce the state rate while expanding the base by adding taxes to some services.
The plan the governor outlined in his $19 billion budget proposal last month and pitched Monday during the Utah Taxpayers Association's annual conference is expected to be front and center when the 2019 Utah Legislature begins meeting Jan. 28.
At the conference, the cost of dropping the state sales rate from 4.7 percent to below 3.9 percent was estimated at $800 million — money that Herbert's budget director, Phil Dean, told participants would come from broadening the tax base.
That could include taxing services such as limousine rides, cosmetic surgery and landscaping, as well as removing exemptions in the law for some purchases, including car washes, although no specific recommendation has been made.
The governor told the legislative, business and community leaders gathered at the Little America Hotel that the state's shrinking sales tax base must be broadened so "everybody is, in fact, required to pay their fair share."
The good news about what he's calling his tax modernization plan, Herbert said, "is if we broaden the base, we have the ability to lower the rate and in so doing, everybody will pay less taxes."
Legislative leaders said Monday they were willing to talk about the governor's plan but stopped short of backing a tax cut or adding new taxes on services and removing existing exemptions.
Rep. Tim Quinn, R-Heber City, said during a discussion of taxing services the same as goods that he believes House Republicans are more interested in lowering the state income tax rate than cutting sales taxes.
While Quinn said lawmakers want to see the sales tax base expanded, "the devil is in the details." Reducing the sales tax rate, however, would exacerbate the problem with the declining sales tax base, he said.
Herbert told reporters his $200 million sales tax cut would be among the largest ever. The biggest — $400 million under former Gov. Jon Huntsman Jr. — replaced the state's 7 percent top income tax rate with a 5 percent rate for all taxpayers.
Last year, lawmakers trimmed that rate again, to 4.95 percent.
He said he didn't know the exact numbers associated with reducing the state sales tax rate, calling it "a math game … this is like Whack-A-Mole," because there will be a tax increase on some services even though he wants a net decrease.
"The hope is that overall, we find that right optimal number, where everybody, in fact, has a reduction of their overall tax obligation, every family, every household, every individual. So that's the goal," the governor said.
As for cutting the income tax rate instead, Herbert said, "Who knows. I guess that could happen. That could be part of the discussion." But he said the narrowing sales tax base is not sustainable.
With the shift to a service economy, the governor said the percentage of economic transactions subject to sales taxes has shrunk from 70 percent to only 40 percent, a situation "that's not fair. That's not equitable."
The future of the economy seemed to be a sticking point with lawmakers.
The governor said at the conference he won't allow his staff to use the "R" word — recession — but House and Senate leaders expressed concerns that the strong economy won't last despite recent budget surpluses.
"I don't know where it's coming from. I don't know what it is out there," Herbert told the conference participants. "But it is not an inevitability that we're going to have some major downturn in the economy."
Senate Budget Chairman Jerry Stevenson, R-Layton, offered a more gloomy perspective.
"I'm not a doomsayer, but something is going to happen," Stevenson said during a presentation about the new budget year beginning July 1 titled, "Caution: Rough Road Ahead."
His presentation cited the $646 million in one-time surplus funds and $657 million in ongoing revenue growth projected, then warned that not many people "think this economy is going to keep going like it's going."
Stevenson said lawmakers voted in special session in December to use $335 million of those funds to help pay for the construction of the new state prison instead of issuing bonds as planned as a hedge against an economic plunge.
Should the economy start heading south, he said the bonds could still be issued later this year to free up that cash. Another big chunk, $458 million, was put into so-called Rainy Day accounts by the Legislature's Executive Appropriations Committee.
"We need to stay within our means," Stevenson said.
Incoming House Speaker Brad Wilson, R-Kaysville, said the House will look at all options to shore up the state's tax system for the long term. Right now, he said, everything is on the table including the size of any tax cut.
"It's time that we have a serious conversation about a tax cut. The specifics about how we broaden the base, lower rates, have a tax cut, I think you'll find we probably have some different ideas than the governor," Wilson told reporters.
He said a year or so before what's known as the Great Recession, the state's revenue numbers looked as strong as they do now.
"We need to be very prepared for both the good times but also in case storm clouds are on the horizon, we need to get ready for that as well," Wilson said, because the current economic expansion can't be expected to continue forever.24 comments on this story
Incoming Senate Majority Leader Evan Vickers, R-Cedar City, said, "Even though everything looks rosy in the budget, we want to be a little careful that we don't just automatically do large tax cuts that aren't targeted in case the money goes away."
Vickers said in an interview he believes the Senate also would prefer to look at reducing the income tax rate, although the issue still needs to be discussed among senators and with the governor's office.
Putting sales taxes on services, he said, is "easy to say. It's hard to do."
Both House and Senate Republicans are set to meet Tuesday in closed, all-day party caucuses to talk about the issues anticipated to come up during the 45-day legislative session.